Lowered rates trickle down to consumers

By DON SHILLING

VINDICATOR BUSINESS EDITOR

BORROWING MONEY WILL SOON
get cheaper. An emergency interest rate cut by the Federal Reserve will help Mahoning Valley consumers and businesses find better deals on many types of loans, area bankers said.

The timing of the cut, a week before the Fed’s next scheduled meeting, was a surprise and so was the size of the reduction. The benchmark federal funds rate was cut Tuesday by 0.75 percentage point, which is the largest cut going back to at least 1990.

Business and consumer loans that are tied to the prime rate will fall as banks begin implementing the cut, bankers said.

Home equity and credit card rates often are tied to the prime rate, and so are many business loans, bankers said.

Steven Lewis, president and chief executive of Warren-based First Place Bank, said the Fed’s cut also should work its way into the mortgage market. Mortgage rates have been falling of late, and the Fed’s action should accelerate the decline, he said.

Lewis said First Place had an increase in mortgage refinancing starting in December. The number of filings in January is on a record pace.

Lower mortgage rates won’t help people who are trapped in subprime mortgages that they can’t afford, said David Lodge, president and chief operating officer of United Community Financial Corp., the Youngstown-based parent company of Home Savings and Loan Co.

These people won’t be able to qualify for refinancing because lenders have tightened their credit standards, he said.

Last week, nationwide mortgage rates dropped to their lowest point since the summer of 2005. Thirty-year, fixed-rate mortgages averaged 5.69 percent, while 15-year rates dropped to 5.21.

Lewis said he doesn’t think the Fed is done with its rate-cutting. He said he wouldn’t be surprised if the board approved a half-percent rate cut next week.

Lodge said he’s looking for President Bush and Congress to begin discussing specifics of an economic stimulus package by next week and have a bill passed by early March. Federal officials are considering offering business tax cuts and personal tax rebates to stimulate the economy.

The nation’s economy has been shaken by the subprime lending crisis. Borrowers with weak credit were approved for home loans with teaser interest rates that later adjusted higher. Borrowers who couldn’t afford the new rates have had to turn over homes to lenders. In many areas, lenders have homes that are worth less than the original mortgages because of declining home values.

The stock market is down so far this year because of concern about the lending crisis, said David Bennett, stockbroker with Butler Wick & Co. Investors are concerned not only by the large losses being posted by lenders but also by the fear that more economic damage is looming, he said.

Still, Bennett said he sees the potential for a better second half of the year. The Fed’s rate cuts should help stocks, and earnings reports in the third and fourth quarters should look good when compared to the same quarters in 2007, he said.

He’s advising clients to stick to their long-range plans despite the downturn in the markets so far this year.

Stock losses have produced some buying opportunities among large, multinational companies such as Coca-Cola and Procter & Gamble, he said.

shilling@vindy.com