Despite Interest Rate Cuts, the Economy Still Struggles With a Credit Crisis

The Federal Reserve has made four interest rate cuts in hopes of starving off recession and putting an end to the credit crisis. While the much needed interest rate cut eased the burden for many that were struggling with adjustable rate mortgages, those that steered away from adjustable rate mortgages and choose a prime mortgage instead are now feeling the same pain as those that choose the latter in home loans.

Due to the high number of foreclosures that were seen across the nation due to the subprime loan bust, the mortgage industry has had to readjust to the number of defaults on home loans. Lending standards today are hardly as lenient as seen in the past and because of these restructured lending practices being seen in the home loan industry. Even those that have prime loans are finding that they are not able to refinance like they thought they would when they initially took out their home loan.

The economy as a whole has taken a huge hit from the sub prime loan bust in general. People with both good and bad credit are affected equally in the lending industry and other financial products are bearing the burden as well. For instance, hedge funds are also showing repercussion from sub prime loan busts with four percent of prime mortgages becoming past due. While it still stands that sub prime loans are those that are more likely to default before a prime mortgage would, the meager four percent of defaults in prime loans is a clear message that the sub prime loan bust is infecting those that have played fairly by all the rules.

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