Are consumers really benefiting?

Reading the article in the WSJ it makes it sound like people are really benefiting from the fed rate cuts. The article called Why Only Some See Benefits from Fed's Cuts notes that rates are dropping for home equity lines but at the same time people are losing access to those same lines. Here are some interesting parts -

Rates on home-equity lines of credit have dropped to 6.27% from 8.25% since September of last year, according to Bankrate.com. Partly as a result, the amount that homeowners borrowed against their lines of credit rose slightly in the fourth quarter of 2007 -- the first such rise since early 2005, according to data from Equifax Inc. and Moody's Economy.com. Rates on home-equity lines of credit should fall further after the Fed's latest cuts, but that might have less effect than would ordinarily be expected, as some banks make these loans harder to get.

In recent months, Countrywide Financial Corp., Washington Mutual Inc., and others have reduced or frozen the amount of credit available to certain borrowers to protect themselves against falling home values and rising delinquencies. Indeed, banks are expected to post a jump in losses from home-equity loans amid a rise in delinquencies. About 4.65% of fixed-rate home-equity loans and 2.01% of home-equity lines were delinquent in the fourth quarter of 2007, up from 3.11% and 1.07%, respectively, a year earlier, according to Equifax and Economy.com.

Indeed, mortgage brokers say their customers are having a harder time borrowing against the equity in their homes. "We're seeing a lot of lenders freezing whatever is outstanding," says Mitch Ohlbaum, a mortgage broker with Legend Mortgage Corp. in Los Angeles. He says some clients, worried about getting cut off from existing lines of credit, have started drawing down their lines in a pre-emptive move.

"They're putting the money into savings accounts and CDs because they're afraid they're going to lose access to the funds," he says. "It's their safety net."

People are afraid to lose the second income that the HELOC's provide. Even taking a loss on the money by sticking into account that will not make them any money. But the equity has become a type of security to many people, it will be hard to leave behind. And it also deter when they have to transition from a spend thrift to a tightwad.