Television reporters — their crystal balls in tow — were talking about it like it was a done deal before it was even announced. Analysts were beyond whether it was going to happen. They were guessing just how much it was going to be cut. And in the end they were all, to a certain extent, correct.

The Federal Open Market Committee did finally cave in to pressure from peers, industry analysts, and even the public at large and slashed the federal funds rate 50 basis points Tuesday to 4.75 percent in hopes of curtailing the housing crisis befalling this country, while still keeping a careful eye on inflationary concerns.

In a simultaneous move Tuesday, the Fed’s Board of Governors also reduced its discount rate (the rate charged by banks to each other to borrow funds overnight) by 50 basis points to 5.25 percent. This is the second reduction in the rate in as many months.

The impact, and reaction, to the cut in the Fed’s short term rate that dictates the interest consumers pay on myriad types of personal and business loans, was immediate and strong — whether for or against it. Wall Street was ecstatic, ending the trading day both Tuesday and Wednesday up markedly. So were lending institutions like Bank of America, which immediately lowered its prime rate.

Some analysts weren’t so sure it was the right thing to do at the moment. One Yale University economist even testified before a congressional committee Wednesday that a drop in consumer confidence could result in a recession within the next year’s time.

In a statement released Tuesday, the FOMC justified making the move (the first rate decrease in years after 17 consecutive upward rate “adjustments” under Alan Greenspan’s leadership, followed by more than a year of a wait and see stance with Fed Chairman Ben Bernanke at the helm).

“Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally,” said the FOMC statement. “Developments in financial markets since the Committee’s last regular meeting have increased the uncertainty surrounding the economic outlook.”

Translation: the Fed’s not sure, but they have to do something. Lowering interest rates always has the potential of increasing inflation rather than controlling it, as we saw with home prices over the past six years. It will take years for the fallout from this latest move to be felt and measured. In the meantime, the Fed says it remains ready to act as needed to promote price stability and sustain the nation’s overall economic growth.

In a published report released Wednesday, RealtyTrac VP of Marketing Rick Sharga stated that the reduction of the federal funds rate may help moderate future foreclosure activity somewhat in two important ways: 1) some people who may have gone over the edge into foreclosure may be spared if the reduction means the rate on their adjustable rate mortgage isn’t reset as high as originally anticipated; and 2) money that has been held out of the credit pool by investors may find its way to Wall Street after all.

Overall, it is way too soon to tell whether this latest move by the Fed will help or hinder the nation’s economy and pull the housing market out of its slump. In the meantime, investors, prospective homebuyers and real estate professionals working the foreclosure market will still have an ample supply of inventory to work with.

In an interesting post on his excellent, informative FHA Mortgage Guide blog, author Peter Miller notes that, over a 5-year period, FHA and VA loans have basically lost half of their market share. While this may speak more to the nature of a loan market that approved virtually anyone, anywhere for any loan, anytime, it also suggests that those in the government responsible for managing programs intended to increase home ownership may not have been as proactive as they should have been over the past few years. Despite the fact that they're not as sexy as "no doc, no talk, just walk" loans - all of which seem to be going into default now - VA and FHA loans tend to be much safer, and an all-around better alternative to the risky, toxic products that have been at the heart of the current foreclosure mess.  

With President Bush proposing the FHA Secure program, hopes abound that some of these governmental programs will continue to help deserving families move into homes, and prevent some disenfranchised homeowners from losing theirs.

As state Rep. Tom Borroughs noted this week at a housing conference here, Kansas is not on the cutting edge of innovative legislation. Its legislature tends to sit back and learn from the successes and failures of legislation implemented in other states before it acts.

But Borroughs and two other members of the Kansas Legislature who attended the conference admitted that now is the time to act to address housing concerns in the state. Two natural disasters that severely impacted Kansas homes this year have brought the issue to the forefront. One of those natural disasters, a tornado four months ago in Greensburg, virtually wiped out an entire town. Now the governor wants to rebuild the town as a environmentally friendly “green” community, according to Borroughs.

“They can do it bigger and they can do it better,” he said.

But it’s not only natural disasters that are impacting the state’s housing situation. The manmade problem of foreclosures is taking a toll on the state’s housing market. Although the state’s foreclosure rate is relatively low compared to the national average, foreclosure activity has been steadily trending upward over the past couple years, according to RealtyTrac. Kelly Edmiston, Senior Economist in the Community Affairs Department of the Federal Reserve Bank of Kansas City, said in a luncheon address at the conference that the state’s housing market never fully recovered from previous foreclosure surges, making it more susceptible to high foreclosure levels now.

“Kansas foreclosures are not at an all-time high, but they’re close,” he said, pointing to a trend chart showing foreclosure activity in the state over the past few decades.

Edmiston attributed the rising foreclosures to three factors: a greater share of nonprime mortgages, which inherently come with higher default rates; payment shock that comes when non-traditional mortgage products reset to higher monthly payments; and the low amount of equity in many homes. Edmiston provided an eye-opening example of how a monthly mortgage payment on a $200,000 so-called nontraditional loan taken out in August 2004 could increase from about $600 to more than $1500 when it resets three years later.

Edmiston said most of the foreclosure problems in Kansas are in the urban areas — Kansas City, Wichita and Topeka. Using data from RealtyTrac he created heat maps showing foreclosure hot spots in those cities. He noted that the foreclosure hot spots tended to appear in low-income neighborhoods. His foreclosure forecast — which he carefully noted was his own personal opinion and not that of the Federal Reserve — was that foreclosure activity will continue to rise in the near future with a decline possible in 2009. But, he added, that could change depending on “what happens to home prices.”

Burroughs addressed what he called the “subprime” problem, noting noting that he believes much of it stems from lack of education among prospective homeowners.

“I truly believe we need to start in our schools with teaching fiscal responsibility,” he said.

Burroughs and his fellow legislators also touched on other housing issues confronting Kansas: that the cost of building a home in some rural areas is more than what the home can sell for on the market; that the state’s low employment rate translates into a shortage of construction workers and a desire for more legal immigrants to fill this shortage; and that funding available for affordable housing cannot begin to meet the demand for that funding.

With mortgage foreclosures at historic highs, Democrats and Republicans are fighting over a political issue that could have major implications in the 2008 presidential campaign.

Sensing an opportunity to win votes, the major presidential candidates have come out swinging; proposing a variety of prescriptions to ease the worsening housing slump.Both the White House and Democrat leaders in Congress agree that something must be done to stop the foreclosures. 

Yearning to retake the GOP-controlled White House next year, the Democrats are clamoring for the federal government to do something, anything, to contain the crisis. The Republicans, on the other hand, are opposed to a government bailout for lenders, homeowners and speculators.

Meanwhile, the rising flood of foreclosures promises to become a major presidential campaign issue in the weeks and months ahead because an alarming 2 million American homeowners could lose their homes by November 2008.

Here’s what the major presidential candidates have to say about the growing foreclosure epidemic:

Democrats
The three main Democratic presidential candidates — Clinton, Obama and Edwards —have made various proposals for modest reform, including setting up a federal fund to help homeowners fend off foreclosure and providing borrowers with counseling, along with laws to ban predatory lending policies.

Democratic presidential front-runner Sen. Hillary Rodham Clinton wants to put an end to prepayment penalties for home mortgages and to set up a $2 billion federal fund to help homeowners avoid foreclosure. Clinton also wants the government to impose new disclosure requirements on mortgage brokers and curb their ability to dictate lending terms.

“We need to act now with smart, practical solutions to strengthen our housing and mortgage markets,” Clinton told The Associated Press. “We need to put an end to fly-by-night mortgage brokers peddling loans to unqualified applicants based on inflated appraisals.'”

By contrast, Illinois Sen. Barack Obama favors fining unscrupulous lenders. Like Clinton, Obama also believes in creating a home rescue fund. Writing in the Financial Times, Obama warned that the foreclosure crisis is “more than a temporary blip in our economic progress, it is a cancer that threatens to spread with devastating impact to housing and to our economy as a whole.”

Furthermore, Obama called for tighter mortgage regulation and blamed lobbyists working on behalf of lenders for obstructing tougher regulation of the subprime industry, adding: “The rules currently governing mortgages were written in the 20th  century to make borrowing easier to understand for borrowers. We need to update these rules for the 21st century and enact the regulatory and disclosure laws that the mortgage industry has been lobbying against.”

Former North Carolina Sen. John Edwards — criticized for investing in a hedge fund linked to subprime lenders that have foreclosed on Hurricane Katrina victims — advocates a “Home Rescue Fund” (financed by taxpayers) to help millions of Americans homeowners who are at risk of defaulting on their loans and losing their homes. Edwards also wants to ban certain fees, establish uniform broker licensing standards and start a national database for disciplinary infractions.

Connecticut Sen. Christopher J. Dodd, chairman of the Senate banking committee, has held several hearings about predatory lending. Dodd wants to end penalties for early payment of subprime mortgages and to raise limits on the portfolios of mortgages held by Fannie Mae and Freddie Mac. “The power exists today with regulators to lift those caps,” said Dodd. “That does not require statutory language or new laws.”

Dodd also pointed out that many brokers give clients the false impression they’re working on their behalf. “Brokers should have to act either as agents of the borrower, thereby owing them a fiduciary duty, or as agents of the lenders, who would be responsible for the brokers' sales practices.”

Delaware Sen. Joseph Biden urged for more transparency in the operation of Wall Street hedge funds and private equity firms. “They are the ones that are causing this to go under, and there’s no transparency, no accountability,” Biden told The Washington Post.

New Mexico Gov. Bill Richardson — taking aim at President Bush and the GOP — called the current financial crisis the “the Katrina of the mortgage-lending industry,” referring to the 2005 hurricane that devastated New Orleans. Richardson added: “The president has let these people regulate themselves, and as a result, the necessary checks and balances have been overlooked. This must change.”

Republicans
Few if any of the nine Republican candidates believe that the government should start cutting checks to help struggling subprime borrowers, speculators and lenders.

Instead, President George Bush and his Republican allies have followed a laissez-faire approach to the markets for the past six years. Bush and other GOP leaders have rejected Democratic calls for a federal bailout in response to the housing crisis.

“It’s not the government’s job to bail out speculators, or those who made the decision to buy a home they knew they could never afford,” said Bush last week, announcing a new package of measures aimed at alleviating the impact of the subprime crisis on homeowners. “The government’s got a role to play. But it is limited. A federal bailout of lenders would only encourage a recurrence of the problem.”

Among the steps Bush announced:

• Urging Congress to pass legislation that would allow more borrowers to get mortgages insured by Federal Housing Administration, either to refinance existing mortgages or for first-time homeowners.

• Changing the tax code so borrowers who win partial forgiveness of their debt don’t have to pay tax on the amount forgiven.

• Enforcing predatory lending laws and strengthening lending practices.

Several GOP presidential candidates agree with Bush’s new plan.

Former New York mayor Rudolph W. Giuliani believes in a hands-off policy to correcting the crisis. Like Bush, Giuliani is opposed to broad government intervention. “I think at most, more transparency, more information” should be added to the system. As president, Giuliani added, he would “not succumb to the temptation of trying to manipulate it too much and come in with a bailout.”

Mitt Romney, the former Massachusetts governor, has also positioned himself as small-government conservative. Romney believes the government should simplify the mortgage process, ensure that regulators better monitor the industry and punish “bad actors.”

Arizona Sen. John McCain wants to avoid a broad and potentially expensive bailout. McCain prefers to target assistance to borrowers who have been taken advantage of by lenders. He also would like to see more consumer education.

As the 2008 Republican and Democratic presidential caucuses approach, more candidates from both sides of the aisle are tapping into the economic anxieties of working Americans by introducing proposals to remedy the growing foreclosure crisis. With homes prices tumbling, foreclosures rising and a glut of unsold homes flooding the nation’s real estate markets, the relentless housing slide will continue to dominate the economic and political news in the months ahead.