Not a surprise. Hopefully this will not cause rates to rise. The last time, it took weeks for rates to settle down and the spreads to contract a bit.

Here is a link that might be useful: Markets

Is it just me, or are mortgage rates not coming down accordingly?

If so, is it because banks are trying to recoup margins from bad loans? Anyone been watching mortgage rates over the last two Fed reductions?

your obvervation is correct, lodge....the fed rate cut will only help the wall street and banks. It will NOT help the homeowners. The long term interest rates, 10 year treasury notes will skyrocket if fed continues with the cuts because foreign investors will demand higher return for the depreciating dollar and increased risk. To make it worse 99% of the ARM loans that are out there are tied to LIBOR which has nothing to do with fed rate cuts and may continue to reset at higher rates.

Try99, so does the fed not know this? What are they doing exactly if it won't "help"?

I'm not arguing with what you said, just wondering how this works, because I DO see that rates don't go down when they've lowered rates.

Inflation seems to be rising, so rates can't really go down. We're in a pickle. lol

It looks like the Fed lowered again to avoid causing a panic in the stock market. I get the feeling that interest rates are being driven more by what the investors want than by objective economic indicators.

try_99, where does your " 99% of the ARM loans that are out there are tied to LIBOR" information come from ???

I know that our HELOC is tied to Prime as are many others. I do not know that it is 99% ;) but it is a lot.

Whether lowering interest rates is good or bad, time will tell, but my personal opinion is, it is politically motivated not economically and I do not expect rates to go up before Dec 2008 ;)

punamytsike I should have been more clear, I was referring to the pool of loans that are hurting the most i.e. subprime ARMs. I apologize for that confusion. As far as how many of these subprime ones are tied to LIBOR, the numbers are all over the place, I have read different numbers ranging from low 70% to high 90%...the reason why I think they are in high 90% is the sudden huge increase in YOY foreclosure numbers that we have witnessed in recent months and we are only into early stage of subprime ARMs resets that originated in 2004/05.

Our HELOC is also tied to the Prime, but I suspect ty 90 meant ARMs used to purchase a home.

I also question the 99% figure because it is my understanding that LIBOR ARMS are given only to A-quality borrowers, and heaven knows many Americans with ARMs wouldn't meet that standard.

I'm sure Dave could enlighten us on this if he happens to be around.

And the foreclosure scene keeps getting uglier and uglier...

Number of US Homes Facing Foreclosure Doubles in Third Quarter

Thank you try_99, for your clarification.

It is better to be specific and list your sources, as too many present day problems stem from slanted/scandalized media reporting. You can report increase from 1 % - 2 % or you can say 100% increase. Guess witch one they will report in the media...

>>so does the fed not know this? What are they doing exactly if it won't "help"? The Fed's mission, legally, has nothing to do with consumers. To misunderstand this is to misunderstand the basic process of how money works in the financial markets.

To quote a WSJournal blog recently:
"Interest rates are the Fed's principal tool of economic management....The central bankÂs responsibility is to the entire economy. To focus only on housing might end up leaving the economy as a whole in worse shape. The Fed cut interest rates in 2001 because business investment was collapsing. Had the Fed held steady because housing was fine, the recession that year would probably have been deeper."
[from "Real Time Economics (blog), Economic insight and analysis from The Wall Street Journal. August 31, 2007, Should the Fed Target Housing?"]

"The Fed's mission, legally, has nothing to do with consumers. To misunderstand this is to misunderstand the basic process of how money works in the financial markets."

Uh huh. And how, exactly, will a less expensive dollar help the economy in a climate of an already-weak dollar, record-high oil, gold at a 27-year high, and low core inflation?

If our country were a net exporter a weak dollar might be beneficial. But we are a net importer, by a long shot. Making money less expensive (which is what a lower interest rate does) just makes these problems worse.

Bernanke is trying to push the economy along, but his only tool is a rope.

cissado - this is just my take and I could be wrong...it seems that fed knows that housing market is going to crash anyways and there is nothing that can be done about that, what it is trying to do is to keep the banks and in turn economy solvent with these rate cuts and liquidity injections. The side effect though is rise in inflation( just look at the price of oil and gold ). If and when the foreign investors realize what is going on, just watch out. They may decide to diversify out of dollar and may get into precious metals like gold/silver, may be commodities and other more stable currencies. Our consumer economy being dependent on foreigners buying our debt may face some tough times in such scenario.

I myself is fairly new to the financial world and just have started reading up on it. But if you are interested and want to educate yourself in economy and finance and such related topics, there is lot of reading material available here on net and as well as in your local library. Just finished reading this book. When I get chance I do plan to go back to the library to look for other books recommended in this book.

We will favor stronger currencies over weaker ones, and will readjust accordingly,'' Cheng Siwei, vice chairman of China's National People's Congress, told a conference in Beijing. The dollar is ``losing its status as the world currency,'' Xu Jian, a central bank vice director, said at the same meeting.....Read more on Bloomberg

We may very well see $5 gas next year.

The Fed Prime rate is a cost of funds for short term loans and credit, including consumer credit. It will immediately reflect in credit cards, car loans, and even home equity lines of credit.

The longer a fixed-term on a loan (especially with mortgages,) the more the lenders hedge them against longer-term instruments, such as 30 year treasury bonds, and cross-hedged futures positions. THESE instruments do not directly correlate to short-term interest changes (especially artificially manipulated changes, like those by the Fed committees.)

Think of it like this;

The Fed is a monstrous ship... like the Queen Mary. It doesn't change direction (rising rates, or falling rates) very quickly, and once it chooses a course it generally stays on that course for a while before turning again... very slowly. NONETHELESS... it raises a "wake" along the way, and the wake turns into waves that lap up against the beaches and consumers immediately see & feel the waves.

ALTERNATIVELY... the long-term credit markets (i.e. bonds, and mortgages) are more like the TIDES. They move to certain natural rhythms, not exactly perfectly symetrical & regular, but not altogether unforeseeable either. The tides rise & fall even more gradually, and a dropping tide doesn't care whether a passing ship raises a few waves or not... the tide continues what it would be doing anyway.

The captain of the Fed ship is guiding the boat as he is reading the tides... the financially-unaware public often thinks that the ship is CAUSING the tides to rise or fall, but it is actually the exact opposite... the ship is navigating its course at cause OF THE TIDES.... and in fact is completely submissive to the long-term financial cycle tides.

Cheers,
Dave Donhoff
Strategic Equity & Mortgage Planner