By Nancy Trejos
Washington Post Staff Writer
Wednesday, November 26, 2008
For consumers looking for a mortgage, the Federal Reserve's plan to boost spending is already bringing relief from high interest rates. But for those hoping to use plastic more freely this holiday season, they likely will have to wait.
The Fed's $200 billion plan immediately sparked a drop in the average rate for a prime 30-year fixed-rate loan, from 5.8 percent on Monday to 5.5 percent yesterday, said Guy Cecala, publisher of Inside Mortgage Finance Publications. Just two weeks ago, it was 6.5 percent.
"You should see mortgage rates near or about 5 percent by early next year, and that should mean smaller payments that people will have to pay on loans," he said.
How the credit card industry will react to the plan, which is expected to go into effect in February, is unclear, consumer advocates and analysts said. In recent months, card issuers have raised the credit score required to get a card, lowered limits or raised interest rates on existing customers, and suspended offers such as 0 percent balance transfers.
Card issuers might be less punitive with their customers now that they will have more financing, consumer advocates and analysts said. But consumers with poor credit should not expect companies to suddenly start courting them or grow more lenient with them.
"There is nothing that is going to help those folks considered to be higher risk," said David Robertson, publisher of the Nilson Report, a newsletter that monitors the industry.
If you have good credit, however, you likely will have an easier time getting a credit card, student loan, auto loan or other type of financing.
"It will improve the availability of credit but not change who that credit is available to," said Greg McBride, senior financial analyst for Bankrate.com. "Consumers with spotty credit are still on the outside looking in."
Indeed, consumers -- both the credit-worthy and not so credit-worthy -- have had a hard time getting credit when they needed it the most. Their wages have not been keeping up with the cost of living and their homes are no longer worth as much.
"We've been hearing a lot from consumers who have seen what was initially a liquidity crisis between banks become a liquidity crisis for households," Consumer Action spokesman Joe Ridout said.
Many college students in particular have suffered, student loan experts said.
Peter Mazareas, vice chairman of the College Savings Foundation, a District-based nonprofit, said he thinks the plan will make private student loans more accessible to students. Interest rates, which had climbed, will probably go down as well, he said.
"It's a very positive step and it's one that is going to make life easier certainly for many frustrated parents who were scratching their heads wondering how they could find money to pay for their children's educations," he said.
Mark Kantrowitz, publisher of FinAid.org, which tracks the industry, disagreed.
"At face value, I don't think this is going to yield many benefits for students," he said. "This is mainly going to help larger lenders, not necessarily trickle down to students with better terms for borrowers."
Christine Lindstrom, higher education program director for U.S. PIRG, said private student loans as opposed to federal ones usually come with higher interest rates and more unfavorable terms. "Students are graduating with too much debt," she said. "We're opposed to using any of the stimulus money on private banks and lenders for private student loan use."
And credit card delinquencies have climbed in the past year.
"The number of consumers falling behind on credit card loans are reaching historic highs," said Travis Plunkett, legislative director of the Consumer Federation of America. "It's important that the government ensures that this program doesn't worsen that situation."
Consumer advocates have urged the Federal Reserve to finalize proposed regulations that would crack down on what the agency has labeled "unfair or deceptive practices," such as charging interest on debt that has already been repaid and assessing late fees when consumers are not given a reasonable amount of time to make a payment. The Fed has said it would do so by the end of the year.
Staff writer Ylan Q. Mui contributed to this report.
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