The Federal Reserve cut short-term interest rates last week for the second time in eight days, lowering the benchmark federal funds rate to 3 percent.

While short-term rates aren't directly tied to mortgage rates, lenders look to the Fed for direction.

Houstonians looking to buy homes or refinance unfavorable mortgages could gain.

"People are going to take advantage of this," said Charlie Houssiere of Secure Mortgage Co. in Houston. "It's going to be a re-fi boom."

Rate cuts are meant to loosen up liquidity in the marketplace, helping stimulate the economy and making more capital available for loans.

Mortgage rates had already started to fall in anticipation of the rate cut. Conventional 30-year rates are now about 5.5 percent with good credit.

The Fed first cut rates three-quarters of a point and then a half-point last week.

Those with adjustable-rate mortgages are likely to see the most impact; ARMs are usually pegged to short-term rates.

Those with bad or poor credit stuck in subprime loans, however, probably won't benefit because subprime ARMs are usually pegged to a different rate.

The Fed's rate reduction comes at a good time.

Many holding variable-rate loans are facing higher payments this year.

And some of those borrowers took out ARMs to buy bigger homes than they would have been able to afford without them, increasing the risk of default.

The Fed rate cut could fuel home buying, as well. Even if it's just psychological, "the general public sees it as a good thing," said Mark Woodroof of Prudential Gary Greene, Realtors.

Single-family home rentals were up last year, leading Woodroof to believe that a pent-up demand for housing could be let loose once the buying mentality returns.

"Getting in now will make a lot of sense," he said.

Houssiere doesn't expect mortgage rates to go much lower than they are now.

But the upcoming presidential election should help keep them low throughout the year, Houssiere said.

"Bush doesn't want to leave the economy in trouble," he said. "He's going to do everything he can to look good till he goes out."