The Federal Reserve slashed benchmark interest rates by half point in an aggressive move, thus tightening the credit conditions, providing potential to intensify the housing correction and preventing the economy from moving into recession. The decision to cut overnight federal funds rate from 5.25% to 4.75% was unanimous. This is the lowest level since May 2006 and the first time the fed has cut interest rates since June 2003. It was the first ? point cut since November 2002. The fed also lowered its discount rate it charges from banks for direct loans by the same percentage.

Short term mortgage rates, which had been rising, sometimes very sharply over the last few weeks fell a bit. Even the long-term rates had an unexpected change showing a healthy decline, according to the Mortgage Bankers Association and Primary Mortgage Market Survey. However:

- The short term 1 year ARM decreased to 6.34% from 6.52% with points remaining

unchanged at 0.93.

- There was a dramatic drop in the 30 year fixed rate mortgage (FRM), from 6.42% with 1.09 points to 6.25% with 1 point.

- The average contract interest rate for 15-year FRM had a decrease from 6.10% with 1.16 point to 5.9% also with 1.03 point.

- The five-year Treasury indexed hybrid adjustable rate mortgage (ARM) had an average contract interest rate of 6.32% with 0.6 point with a modest change from a rate of 6.35% with 0.6 point.

- One year Treasury indexed ARMS after jumping 24 basis points to 5.84% with 0.8 point, it settled down and gave back ten of those basis points, averaging 5.74%with 0.6 point.

- Mortgage application volume that has increased to 5.5% on a seasonally adjusted basis was down to 16.7%.

On the other hand, refinancing as a major part of total mortgage activity was up to 42.1% from 41.4%. But, the market share of the ARMs continued to drop, representing 12.6% of total application compared to 13.2% before.

The Federal Reserve Board's decision to cut the federal funds rate by 50 basis points proved good medicine for many ailing mortgage related stocks.

According to the other latest updates, nationwide foreclosure fillings jumped 36% led by sharp increase in Sunbelt states where inflated home prices are the driving factor. California, Florida, Nevada and Arizona drove the rate of mortgage loans entering foreclosure nationwide to a new record.

During the second quarter, loans entered the foreclosure process at a record rate of 0.65% compared with 0.58% during the previous quarter.