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Mortgage Rates Drop, Greenspan Lowers Fed Rate

Last week, the booming housing market celebrated with the ultimate tonic--record low mortgage interest rates. Freddie Mac, the secondary market lender, reported an average rate of 6.64 percent for 30-year loans, the lowest since 1968. Homeowners celebrated by refinancing their mortgage loans and saving hundreds of dollars on their monthly interest payments, while home buyers enjoyed the most affordable financing in years.

As if that weren't enough good news, on September 29th, Federal Reserve Chairman Alan Greenspan announced a quarter-percent cut in the Fed's official interest rate. The Fed's short-term rate does not directly affect mortgage rates--mortgages are more closely tied to U.S. Treasury notes. Lower Fed interest rates make more reserves available to banks, pumping more money into the financial system. It's mostly good news for consumers. Interest charges on home equity lines of credit, credit cards, and some personal loans may go down slightly. The only downside for consumers would be lower returns for certificates of deposit, money market accounts and interest-bearing checking accounts.

''The action was taken to cushion the effects on prospective economic growth in the United States of increasing weakness in foreign economies,'' the Fed said in a statement. The stock market, on the other hand, was disappointed with the modest quarter-percent cut by the Fed. Expecting a cut of a half- percent or more, the Dow Jones index dropped more than 100 points the day of the Fed announcement, clawing back to just a 28 percent loss by the end of trading.