Yesterday’s market had more ups and downs than Fred Thompson’s run for the presidency! And it looks like both the stock market and rates are lower again today on recession fears, leading loan agents (those still in the business) to start “smilin’ and dialin’” and calculating how many commission checks it will take to pay off their home equity lines. (“I promise I’m going to put more in the bank this time around!”) Jumbo Intermediate ARM rates are down in the 4% range if the borrower wants to pay a point. The 10-yr is down to 3.30% this morning, and mortgage prices are starting off better by another .250 in price.

Yesterday’s Fed move caused folks to think back on what Fed Funds really are. Remember that “Fed Funds” is the rate that banks can borrow money from each other to keep their reserve amounts in line. The “Discount Rate” is the interest rate at which an eligible financial institution may borrow funds directly from the Federal Reserve when their reserves dip below the reserve requirement. The Discount Rate is considered the last resort for banks, which usually borrow from each other. The Federal Reserve can change either, but they can’t change mortgage rates. If a borrower asks an agent why their mortgage lock doesn’t drop .75%, there are two answers. First, the loan is locked, and they have an obligation to the lender, just as if rates moved the other way. Second, moves in overnight rates aren’t directly linked to mortgage rates, and http://library.hsh.com/?row_id' may be a help to you. Mortgage rates are dependent upon many more complicated factors than the Fed raising or lowering them. The supply of mortgages, the demand by investors for them, the value of the servicing, the credit quality of the borrower, etc. all factor into mortgage rate. Also check out http://biz.yahoo.com/cnbc/080122/22783168.html

Regarding yesterday’s notes on the Bank of America/Countrywide union, please note that much of the content should be attributed to Bob Hagerty, who writes for the Wall Street Journal! Speaking of the Wall Street Journal, there is an article today discussing the Fed’s move. L. Meyer, a former Fed governor, believes that the FOMC wants to increase the pace of rate decreases, and stated that the Fed action "would be pointless" if it only moved up its action by a week. Along those lines, Lehman Brothers forecasts, a little late for Aurora’s good, “…a 25 basis point rate cut as likely at the scheduled meeting next week, followed by another 75 basis points of easing through June (.25% each in March, April and June). This places the terminal Fed funds rate at 2.50%.”

What is the latest on loan limits? There are two bills (HR 1427, the House version, and S 2036, the Senate version) that would raise the conforming loan limit among other things, both supported by Bernanke and Paulson. H.R. 1427 passed in May 2007. (!) The bill would increase the conforming loan limit in high-cost areas to the minimum of either 150% of the national limit (to $625,500) or the median price in the same area. The higher limits do not apply to loans held as assets by the GSEs, only to mortgages packaged into MBS and sold by the GSEs. S. 2036 was introduced in the Senate in September 2007 but has not yet been subject to a vote. (!) The proposed increase in loan limits would be the same as in H.R. 1427. This bill would raise the loan limit for all conventional single-family mortgages, not just those serving as collateral in MBS. Importantly, the increase would be for only one year following enactment.

Interestingly, California accounted for 49% of the dollar volume of securitized jumbo mortgages and only 14% of agency (Fannie/Freddie) mortgages. The same study found that 92% of the affected mortgages would be California loans. So increasing the loan limits would lead to a higher concentration of California loans in agency pools, which may or may not be desirable from an investor’s viewpoint. Also, with the additional potential supply of FNMA/FHLMC securities, some wonder if that will actually move their prices down and rates up, relative to other mortgages!

A young ventriloquist is touring the clubs and one night he's doing a show in a small town in Arkansas.

With his dummy on his knee, he starts going through his usual dumb blond jokes when a brunette woman in the 4^th row stands on her chair and starts shouting, “I've heard enough of your stupid blond jokes. What makes you think you can stereotype women that way? What does the color of a person's hair have to do with her worth as a human being? Its guys like you who keep women like me from being respected at work and in the community and from reaching our full potential as a person. Because of you and your kind, people continue to perpetuate discrimination against not only blonds, but women in general...and all in the name of humor!"

The embarrassed ventriloquist begins to apologize, and the gal, who is a brunette, yells, "You stay out of this mister! I'm talking to that little jerk on your lap."

Rob