If you see a home listed for sale, who’s selling it? According to an article by Kenneth Harney over the weekend, in the Bakersfield area, 45% of current sales listings are REO properties. They have become the new comps for appraisers.

Merrill Lynch is predicting Fed Funds to hit 1% and the yield on the 10-yr Treasury to get to 3.0% by the end of 2008. Are they the smartest guys in the room? I sure hope so… So far this morning things are pretty quiet with the 10-yr coming in at 3.60% and mortgages roughly unchanged from Friday afternoon.

The latest on FHA limits are that the proposed changes raise the current cap of 95% of median sales price to 125% and also raises the maximum from $362,790 to $725,000. For example, if 95% of the median sales price ($368,421) resulted in an FHA limit of $350,000 today, the new limit, if this provision is enacted, would be increased to approximately $460,500. In a market with a median sales price of $500,000 (1.25 times $500,000), the limit would increase to $625,000, etc. Aside from some press over the weekend about Republican opposition on some issues (the president supports it), the legislation will likely be passed by the House very quickly, possibly this week, and then go to the Senate. The House and Senate still have to work out the existing differences in the FHA bill including the mortgage limit issue.  Most are hoping for passage by mid-February.

• Indymac is discontinuing their HELOC program today. They are also changing lock period adjustments based on purchase versus refi after noting that longer term locks for refinances are falling out at an accelerated pace while purchase pull-through continues to be strong. Indymac is also ceasing their “Alt A Non Owner Occupied with Stated income and Fast Forward doc types” program.
• WAMU ceased any overnight rate lock protection, and placed a 5PM cut-off time on all new locks, given the market volatility. Anyone who knows much about risk management wonders why any investor offers any protection overnight!
• Taylor, Bean & Whitaker announced restrictions on declining markets, “Declining Market Restrictions Effective Immediately on any Conventional loans Underwritten AND Locked on, or after, January 25, 2008, in addition to guidelines already in place: IF the approved reduced LTV is OVER 80%, the max allowed TLTV/CLTV must also be reduced by 5%.”
• Chase, “to prevent delays and better respond to broker requests”, is temporarily suspending 15, 30, and 45-day rate locks. Effective last Friday, the 15, 30, and 45-day rate locks will be unavailable. Only 60 and 75-day locks/relocks will be listed on Chase rate sheets.
• BankUnited Financial Corp. reported a mortgage-related net loss of $25.5 million for the fourth quarter and announced the closure of four of its nine wholesale residential mortgage sales offices.
• CMG Mortgage of San Ramon closed two of their wholesale branches (San Diego and Illinois).

Last week was a “zany” week for applications. Agents saw the phone ringing off the hook, but will they fund? One agent wrote and told me, “I personally called about 20 past clients in one day and out of all 20, all who had 680 plus FICO’s and all full doc, and all had been under 80% LTV’s as recently as 4 months ago, I was only able to refi 5 of them. All of the 15 others’ properties lost at least 10% in value since our last refinance, and all were in Arizona and under 250k initial values.”

This will be a busy week for scheduled economic news, possibly including another Fed rate cut, regardless of what the stock markets do.

Today we have December’s New Home Sales (expected -0.3% to 645,000 after November’s big drop), along with a $24 billion 2-yr Treasury auction.

Tuesday we’ll see Durable Goods orders (expected +2.0%), Consumer Confidence (expected at 87), a 5-year T-note auction, and the start of the Fed meeting

Wednesday: GDP for the 4^th quarter (expected +1.2%), and the FOMC interest rate decision.

Thursday Jobless Claims, the Q4 employment cost index, PCE deflator, and the Chicago Purchasing manager’s index.

Friday we have the employment report (expected 5.0% with non-farm payrolls expanding 55k), Univ. of Michigan’s Consumer Confidence number, ISM manufacturing index, and Construction Spending.

Overall, look for Wednesday or Friday to be potentially the most volatile. Wednesday’s GDP & Fed move, and Friday’s Employment and ISM reports are the most important pieces of data, but we may see quite a bit of movement in rates Tuesday or Thursday also.

"Hello, is this the Sheriff's Office?"
"Yes. What can I do for you?"
"I'm calling to report 'bout my neighbor Virgil Smith....He's hidin' marijuana inside his firewood!  Don't quite know how he gets it inside them logs, but he's hidin' it there."
"Thank you very much for the call, sir."
The next day, the Sheriff's Deputies descend on Virgil's house. They search the shed where the firewood is kept. Using axes, they bust open every piece of wood, but find no marijuana. They sneer at Virgil and leave.
Shortly, the phone rings at Virgil's house.
"Hey, Virgil! This here's Floyd....Did the Sheriff come?"
"Yeah!"
"Did they chop your firewood?"
"Yep!"
"Happy Birthday, buddy!"

Rob