Interest rates are going down, that should surely affect mortgage rates and therefore foreclosures, right? Not so fast.

The Federal Reserve interest rate cut by ¾ of a percentage point today means that short term interest are lowered. The effect on long term interest rates is not quite clear yet. Fixed mortgage rates are tied to the long-term bond yield that move up or down based on the long term economic outlook and inflation. I think we all know that long term, our economy does not look that optimistic.

Of course, this rate cut will have an effect on credit card rates and other rates on consumer spending. It will also affect adjustable home equity lines of credit. So the interest rate on that balance you are carrying on your HELOC (from when you paid off some high interest credit cards or bought that car that you really could not afford) will go down.

Today’s rate cut will also affect short-term adjustable rate mortgages, but probably not as much as you might think. This is because this rate cut was already partially priced into the market, maybe not three quarter's point, but definitely a half-point. So if you are facing a reset on your ARM, you are better off than you were six months ago and you will most likely be in better shape in 6 months from now as the Fed is expected to continue slashing interest rates, at least until this year’s presidential election.

Now to foreclosures; does this rate cut affect or stop the foreclosure crisis? It most likely will not as the majority of people who face foreclosure and cannot make their monthly payments do not have equity in their homes and no money to put down on a refinance. With the no-income-no-assets and stated income loans made to people with shaky credit, some even with no money down, everyone was banking on home prices continuing to go up so they could refinance into another ”exotic” loan. With falling home prices, these folks can simply not refinance – which would be for most, the only way out. A few bucks of their current monthly payment is not going to make a difference.

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