Fed Rate Cuts Help Homeowners

This is a very good article. It tells how significant the Fed's rate rates will impact the housing market. The cuts will mean fewer foreclosures, more refinancing, and therefore the entrance of savy buyers and investors into the housing market to take advantage of lower borrowing rates. Please read this article from the San Jose Mercury News:

Mercury News Reports that Fed's rate cuts to pay off big-time for borrowers
HOMEOWNERS' PAYMENTS TO DROP WITHIN MONTHS, BUT SAVERS LOSE

By Kathy KristofTribune Media Services
Article Launched: 02/10/2008 01:41:32 AM PST

For many Americans, the effects of the Federal Reserve's aggressive rate cut will be swift and striking. The average borrower could save hundreds of dollars within a few months - and the average saver could lose just as much.

Fortunately, as far as the strength of the consumer-driven economy is concerned, there are fewer people relying on the income earned by their investments than there are people heavily in debt. With $2.5 trillion in consumer debt outstanding - and trillions more in home equity lines of credit and adjustable-rate mortgages - a cut of the magnitude made last week can translate into billions of dollars in spending power.

"It's bad for seniors who are living on fixed incomes, but this gigantic baby boom generation is largely made up of borrowers," said Gary Schlossberg, senior economist with Wells Fargo Capital Markets in San Francisco.

Wendy and Nicholas Stanton, who work in the entertainment industry, are among the borrowers, with an $83,000 equity line of credit secured by their house in Pasadena. If the rate on their credit line drops by the same amount the Fed cut its key short-term rate - three-quarters of a point - it will shave $50 or so off the line's monthly payment.

The Stantons say they'll spend that money, which is what the central bank wants them to do.
"The way our industry and the housing market are at this moment in time, even a $5 payment cut is significant to us," said Wendy Stanton, an art director out of work because of the writers strike.

The nation's 75 million homeowners are likely to feel the most significant and immediate benefits. Home equity lines of credit are often tied to the prime rate and other short-term indexes that fall in lock step when the Federal Reserve cuts its benchmark rate.

Conventional mortgage rates tend to follow rates on long-term Treasury bonds, which fell further last week after the Fed acted. Already, rates on 30-year fixed mortgages are at their lowest levels in at least 2 1/2 years.

On Jan. 18, the best rate available on a 30-year loan was 5.5 percent, said Jeff Lazerson, president of Mortgage Grader, a Web-based loan shopping service. By the afternoon of Jan. 22, it had fallen to 5.125 percent for borrowers willing to pay 1 percentage point in upfront costs.
That's likely to touch off a refinancing boom, Lazerson said…

…What's more, $25 billion to $30 billion in adjustable-rate mortgages are "repricing" each month throughout 2008, said Greg McBride, financial analyst with BankRate.com. Because these loans typically adjust once or twice a year, last week's rate cut combines with other recent Fed cuts to provide many of the borrowers with a huge break.

"This is going to save a lot of people from completely unmanageable payment increases," McBride said. Someone with a $200,000 ARM would have been hit with a $370-a-month payment increase had the Fed not acted in recent months to cut short-term rates a total of 1 3/4 percentage points, he said. Now the increase will probably be in the range of $100 a month.
"For many homeowners, those manageable rate resets will be the difference between keeping a home or losing it," he said.

McBride said the rate cut could prove far more significant than the lending industry's pledge to help certain subprime borrowers.

"This affects everyone," he said.

Because the vast majority of credit cards are issued at variable interest rates, credit card debtors stand to benefit, too. The latest cut in the Fed's key rate will probably be passed on to consumers within one to three billing cycles, said Justin McHenry, research director at Index Credit Cards.com. in Cleveland.

A person with $5,000 in credit card debt will save about $3 a month, according to Bill Hardekopf, chief executive of LowCards.com. That's chump change, to be sure, but for those with big balances it may be enough to help them meet minimum monthly payments and start whittling down their obligations…