What the rate cut means for mortgages

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Random thoughts, bloviation and links on this morning’s ‘surprise’ Fed rate cut. (Why the air quotes around ‘surprise’? Ask yourself: was it really a surprise?)

--What does it mean for mortgages? CNBC’s Diana Olick was up early and all over this. Diana blogs, ‘I’ve said it before, and I’ll say it again: the 30-year fixed is not tied to short-term treasuries. ... Fixed mortgage rates are tied to long-term bond yields that move based on the outlook for the economy and inflation. And guess what? The long-term outlook for the economy isn’t exactly rosy right now. Today’s rate cutdoes affect short-term adjustable rate mortgages, but not really as much as you might think. Why? Because this rate cut was already priced into the market...’

--What does it say about the economy? It says things are bad. Or, as a Deutsche Bank analyst told Reuters, ‘The Fed is very, very, very worried.’ The largest rate cut since 1984, by my logic, means the largest economic problem since 1984. You can forget the parallels to the early ‘90s real estate slump -- this is worse; the Fed just said so.

--What will the markets do? If I knew I’d be golfing, and if you listen to me you’re a dope, but in a fit of caffeine-induced late-night speculation, I made my predictions last night over at the Blown Mortgage blog: Dow loses 485 points in early trading, closes with a loss of 312. I believe I’m out of the money on that one.

Your thoughts? Insights? E-mail story tips to peter.viles@latimes.com.