Bookies (and traders) see an 88% chance the Fed will lower its 5.25% overnight rate for loans between banks to 5% at its mid-September meeting. The odds for a cut to 4.75% in December rose to 47%.

Mensa is an organization whose members have an IQ of 140 or higher.  A few years ago, there was a Mensa convention in San Francisco, and several members lunched at a local cafe. While dining, they discovered that their salt shaker contained pepper and their pepper shaker was full of salt.

How could they swap the contents of the bottles without spilling, and using only the implements at hand?  Clearly this was a job for Mensa!  The group debated and presented ideas, and finally came up with a brilliant solution involving a napkin, a straw, and an empty saucer.  They called the waitress over to dazzle her with their solution.

"Ma'am," they said, "we couldn't help but notice that the pepper shaker contains salt and the salt shaker..."

"Oh," the waitress interrupted.  "Sorry about that." She unscrewed the caps of both bottles and switched them.

For those who wonder, “When is this anti-mortgage madness going to stop?” this might help: http://www.nytimes.com/2007/08/12/business/yourmoney/12every.html?_r1&o...

Thanks to Dana Mesarchik, an agent here at RPM, for sending this link to an article which summarizes the current mortgage mess:

http://money.cnn.com/2007/08/14/news/international/pluggedin_gumbel_contagion.fortune/index.htm?postversion 07081410

First Magnus, in 2006 the #9 Alt-A lender, #20 retail lender, and the #24 largest lender with $30 billion in 2006, has thrown in the towel. Their announcement simply said, “In light of the collapse of the secondary mortgage market, First Magnus will not fund any future mortgage loans, and is no longer accepting any mortgage loan applications or funding any mortgage loans previously originated and not yet funded.  We explored all options before taking this action but were left with no viable alternative.”

National City Mortgage Correspondent Lending sent out a letter saying that they would not accept assignment of trades with Countrywide, but then retracted the announcement. Aside from that, yesterday was pretty quiet on the “underwriting changes, company news” front.

What has Wall Street been up to lately? With Bear Stearns owning EMC, Morgan Stanley owning Saxon, Barclay’s Equifirst, Deutsche Bank’s MortgageIT, Merrill Lynch’s First Franklin, Lehman Brothers’ Aurora, obviously Wall Street has an interest in the mortgage arena. Interestingly, a few investment banks have made news recently by changing their TBA (“To Be Announced”, another name for the generic mortgage-backed securities) trading philosophy. Morgan, for example, has severely limited their trading activities, and others have put many mortgage companies on their “restricted” list, only allowing limited volumes and types of trades.

Housing creates a lot of ancillary economic activity and jobs: some say that housing and related industries account for almost 25% of gross domestic product! Companies that make anything that goes into a home, all the wiring, plumbing, anything related to coatings and fixtures, will certainly be suffering, along with shopper’s savings if the value of their home declines. What about builders? There are many issues that have sprung up. Most builders weren’t able to stockpile as much cash as expected, partly because they have had to keep building large housing developments, even though demand dropped off sharply: once you start putting in the plumbing hookups and the roads, you can't abandon these projects halfway. The sharp drop in sales and home prices obviously haven’t helped, nor have the large incentives for buyers. Builders own too much land, in spite of trying to protect themselves by using options to secure land, but as it turns out, some builders still ended up owning too much land: several years’ worth. Diversifying geographically across the nation hasn’t helped, as much of the builders' profits came from the markets hardest-hit by the recession.

The most negative analysts believe that because loan standards are now much tougher, at least 10% to 15% of the people who could have qualified for a home-purchase loan last year can't do so now. Meanwhile, many of the people who would still qualify for a loan don't want to buy a house now because they think prices will fall further. So the housing market is likely to remain weak for at least another couple of years, they believe. One reason is that it takes time to absorb all the houses and condos waiting for buyers. The NAR counts about 4.2 million resale homes for sale, along with more than 500,000 new homes on the market. That is enough to last about 8½ months at the recent sales rate; a supply of five to six months generally is considered balanced.