The Fed Discount Rate Cut - What Does it Mean to You and Me?

Thanks to the recent rate cut by the Federal Reserve, things should be looking up in the financial markets. The fed discount rate was just cut from 6.25% to 5.75% on Friday. The move was designed to bring some sanity back to the market that has been uneasy with the subprime mortgage issues.

According to an article on MSN Money, the fed discount rate cut has already had an impact:

Analyst Robert Lacoursiere said Countrywide's move Thursday should help address its liquidity concerns...

Another MSN Money article speculates this is just the move needed to alleviate the problems with the latest mortgage meltdown:

If I'm right, the market will turn around when the hedge funds have raised enough money to cover their margin calls. When is that going to be? It depends on the collateral value of the subprime mortgages that the hedge funds have decided to keep. This is why today's Fed announcement is so important.

Much of this positive outlook is due to the fact that the fed announced that subprime mortgages can be used as collateral. This means that banks will be able to once again sell their troubled subprime mortgages to pay for their credit lines.

For you and me, this is good news and means that mortgage brokers will be able to find funding again for their subprime mortgages again that they have been previously frozen out of. Last week it was sounding like only those with the better credit were going to be able to get loans, but now the market for subprime should be opening up again.

The feds rate cut by 50 basis points also leaves room for a future move, if this isn't effective enough (i.e. to still cut by another 25 or 50 basis points).

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