Those hoping for lower overnight rates got them. “The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points to 3.5%. The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets. The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully. Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.”

The markets in the United States were closed yesterday, but stock markets around the world declined 5-10% due to fears of a recession, both here and abroad, and the impact of the housing slump on consumer spending. The Fed move is the first inter-meeting move since September 2001, and comes one week ahead of their meeting next Tuesday & Wednesday. In addition to the Fed announcement, U.S. Treasury Secretary Paulson spoke this morning on the economy, housing and credit markets in a scheduled speech. On Friday, the White House unveiled their economic stimulus plan to boost the economy and avert recession, but many have viewed it as too limited to prevent economic contraction: “putting out embers as the forest fire rages” one analyst suggested.

Where do interest rates stand at the moment? The yield on the 2-yr Treasury is down to 2.05%, the 10-yr is 3.53%, and 30-yr conforming conventional loans have improved by .250-.375 in price. Now, the agents at NL Inc tell me, if only we could find some borrowers who qualify and with equity!

Countrywide’s stock is back below $5 per share, a 12-yr low, due to both the overall market and on fears that Bank of America could walk away from its agreement. On the day the deal was announced, January 11^th, the stock was at $6.33/share, but it is important to remember that stocks in takeover deals regularly trade below the offer price because of the risks that plans could fall through. The purchase is due to be completed in the third quarter, although the details of the merger agreement that Countrywide filed with the Securities and Exchange Commission late Thursday show that Bank of America has wide leeway to walk away: one condition is that Countrywide must get an unqualified opinion on its 2007 annual report from an outside auditor, there was no "specific performance" clause which refers to the ability of the seller to force the buyer to complete a buyout, and Countrywide also agreed to a broadly worded clause on "material adverse changes" that could halt the transaction.

Company news:

Bank of America Corp said fourth-quarter profit sank 95%, hurt by more than $7 billion of losses tied to poor trading decisions and mounting credit problems. It included $5.4 billion of trading losses, and a $5.28 billion write-down related to collateralized debt obligations.

Wachovia, owner of World, said its fourth-quarter earnings tumbled 98% due to a $1.7 billion reduction in the value of loan portfolios and $1.5 billion set aside to cover bad loans. Wachovia took a $1.7 write-down during the quarter due to weakening credit markets. The write-downs included $1 billion related to collateralized debt obligations backed by subprime mortgages.

Flagstar reminded me that they “temporarily suspended our current jumbo product and are in the process of updating our guidelines for a new jumbo product which will be released next week. Clients with current commitments were able to lock for 30 days.”

Due to current market conditions, HSBC will be adding new overlays to the HOME 97 program. Last week “any loan with an LTV > 70% and a FICO score < 680 will be charged, and the Maximum Price paid for all HOME 97 programs in California will be decreasing effective January 18, 2008: Current Maximum Price: -3.00% New Maximum Price: -2.00%.”

Effective today, AgFirst will no longer be offering the Alternate Documentation and Expanded Approval products, and extensions and relocks will not be accepted. “Many investors and mortgage insurance companies are changing their policies and insurance coverage’s on these types of loans. We feel it is in all of our best interest to discontinue these products until further notice.”

I pulled into the crowded parking lot at the Super Wal-Mart Shopping Center and rolled down the car windows a little to make sure my dog had fresh air.

She was stretched full-out on the back seat and I wanted to impress upon her that she must remain there. I walked to the curb backward, pointing my finger at the car and saying emphatically, 'Now you stay. Do you hear me? Stay! Stay!’?

The driver of a nearby car, a pretty blonde young lady, gave me a strange look and said, “Why don't you just put it in park?”

During the rainy season, it is important to remember that raindrops fall between 7 and 18 miles per hour (3-8 yards a second). The record for one minute of rainfall was 1.23 inches (1956, Unionville, Maryland). And lastly, remember that frozen raindrops make sleet or hail – not snowflakes.

Rob