Experts: Fed Rate Cut May Not Help Borrowers Much
You know, I hate to be a pessimist, but the more I read about the Federal Reserve's decision to cut the Fed Funds rate by half a point, the less sure I am that it's going to make much of a difference.
Although Tuesday's rate reduction will help "banks, lenders and Wall Street," says Christopher Cagan, research director for First American Real Estate Solutions, it probably won't have much effect on homeowners struggling to pay their mortgages or trying to refinance to make their loans more affordable.
"But I don't think we'll see credit card rates dropping, or that all of a sudden the spigot will open and everyone will be making all those mortgages loans again," Cagan told the San Jose Mercury News.
Although the Fed cut the rate by more than expected, Richard Hastings, an analyst at Bernard Sands LLC, told MarketWatch that the Fed can't help the subprime-mortgage borrowers. "It will help those who need it the least," he said. "But for those who need the most help, this does nothing for them."
Some experts say the cut sends a signal to reassure lenders, Jim Zarroli reported on Morning Edition, although a change in the housing market may take time.
Edward Leamer of the UCLA Anderson Forecast says even if mortgage rates decrease, that alone won't be enough to stop the housing recession. "There's not going to be a lot of joy out there in those neighborhoods where the foreclosures and delinquencies are already high," he said.
One group who may benefit? Folks who have home-equity lines of credit, whose rates are tied directly to the prime rate. Lenders generally match the Fed rate changes on these loans.
To be honest, I lose and win on this one. It won't help my house in Massachusetts sell faster, but it means the monthly payment on my home equity loan goes down. How about you?
9:38 AM ET | 09-19-2007 | permalink
