Ask yourself this question - "what does that mean to me?"
If you answered with some form of "now the rate on my variable-rate mortgage will go down...", you should realize that your variable rate mortgage is tied to an INDEX, not the FED rate. more than 90% of variable rate loans are tied to the LIBOR, which is short for London Interbank Offered Rate.
As the LIBOR goes, so goes the rate on your mortgage.
Have you been watching the news on the LIBOR lately? I didn't think so.
Here's a snap-shot:
The British Bankers' Association said the overnight LIBOR -- the interest rate banks charge each other -- remained steady at 6.47% on Monday. The rate, however, remained significantly higher than the 5.87% rate seen on Thursday and Friday. Three-month and twelve-month LIBOR rates set fractionally lower than on Monday, the association said.
From 5.87% to 6.47% is more than a half-point move in the WRONG direction. Overnight. The London folks were sitting on the sidelines watching the Great American Credit Fiasco, thanking their lucky stars that they hadn't been sucked into it, then they realized they HAD been sucked into it when it was noted how many British and European institutional lenders and banking organizations were SHAREHOLDERS in the very same American funds that were now showing themselves to be nothing more than junk bonds.
When they discovered that, the LIBOR went from 5.87% to 6.47%.
And if you have a one-month LIBOR loan (the rate is calculated every month), your rate moved .6%. Overnight.
I bet that was fun.
And in the category of "It's not the rate, it's the program", here's something else...
The FED lowers the rate to try to bring some capital back into the markets, which, if you have been watching the markets in the last two days, you know it HAS, but here's The Thing:
No institutional bank/buyer (who has money available) is going to put its money back into the bond market until the big lenders can prove that they are making responsible loans that will perform and not end up in foreclosure. It's that simple. And as long as those institutions AREN'T buying loans in the secondary market, the lender who made the loan has to keep it, tying up money that could be freed up and loaned out again. This KILLS any lender that isn't THE MOST CONSERVATIVE LENDER ON THE PLANET.
For example, yesterday, Countrywide said they are OUT of any kind of loan business that is not Super Prime, in an effort to convince the market that they are making responsible loans now, please buy them. This is the same Countrywide who, in the last three weeks has borrowed more than 20 BILLION dollars in an effort to stay afloat and make loans.
Until the banks begin to trust lenders again, it doesn't matter what the rates are.
Compared to 12 months ago, there are about 25% of the loan programs available now that were available then. Some may say that's a good thing - we'll see how many lenders exit the business. I can tell you that banking industry layoffs are putting a drag on the economy. Couple that with looming foreclosures, BKs, which will surely follow, and we might be looking at a perfect storm.
My advice for people in the markets: I hope you were holding significant gold futures. Seriously.