THE BASIS POINT

FOMC Cuts Fed Funds 50bps to 1.5%, Other Central Banks Cut Too, Citi Trims Wholesale

 

As I was examining the fine fleece wear at Costco yesterday afternoon, I overheard someone say, “The stock market’s fall has wiped out about $2 trillion in Americans’ retirement savings in the last 15 months. Now I have to stay on the job longer than I planned, and tighten my spending.” This is devastating news to anyone in mortgage banking, who probably thinks about retiring several times a day – even if they’re in their 20’s! Everyone seems fascinated by the stock market lately. Heck, it still has another 9,000 to lose, right? (See joke below.) This would, in effect, suggest that every public company in the United States has no future value, which makes no sense.

I heard an analyst the other day talking about “taking a position” in the stock market and he indicated that at this time there are only 2 positions that people take in the market:
1. Cash
2. Fetal

Fed and Other Central Banks Cut Rates
This the third day of light scheduled economic news releases, which this morning is dominated by news of the Fed’s rate cut. Perhaps last night’s coordinated emergency rate cut by the Federal Reserve, European Central Bank and four other central banks will help. Here this morning stocks are up, Treasury rates are slightly better (the 10-yr is at 3.53%), but mortgage prices are roughly unchanged.

The Fed’s announcement, by the way, said that, “Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank, and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions. The Federal Open Market Committee has decided to lower its target for the federal funds rate 50 basis points to 1-1/2 percent. The Committee took this action in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures. Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit. Inflation has been high, but the Committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation.”

Lender Updates: Citi Cuts Most Of Wholesale Channel
Word swept through the e-mail channels yesterday that CitiMortgage was closing their wholesale channel. (Looking back at WaMu, GMAC/ResCap, IndyMac, Wachovia, and Nat City exiting this business channel, it didn’t bode well for brokers.) As it turned out, all but 1000 brokers will be cut off, and serviced by a telesales unit (St. Louis & Dallas) and 6 relationship managers. Apparently this represents a cut in brokers by 90%, and an elimination of practically every Citi wholesale AE job 300) and internal staff (another 200).

It is rumored that Chase tweaked their organization in Cleveland and Jacksonville due to production levels, and also cut jobs. I have not seen or heard any firm numbers.

U.S. Bank Home Mortgage Correspondent Lending Division is discontinuing their remaining “Quick & Simple” SISA Programs. Effective close of business Friday, October 10, 2008 USBHM will no longer accept any locks on the programs.

Radian Guaranty is changing its underwriting guidelines, thus locking loan brokers out of the condominium market. Against complaints in the press from NAMB, on 10/20, Radian will only accept insurance applications on condo loans if they are funded through a lender’s retail network. It’s believed that Radian is the first of the nation’s seven MIs to adopt such a policy on broker-sourced condo loans.

Lehman CEO Punched At Gym
“Something I said?” Working out may be hazardous to the health of Lehman Brothers executives.

Mortgage Applications Update
The MBA Mortgage Applications Index was +2.2% last week. Purchases increased 3.2% while refinancing activity increased 0.9%. As one top agent put it, “Buyers are ‘freaked out’ right now. Buyers are talking about backing out. With news like ‘great depression II’ these people do not feel confident that they will have a job tomorrow in order to make their payments or that their values and investments won’t further plummet. People are waiting on rates to drop down below 5.5% to refinance. Given the bleak economic news it seems like everyone is just frozen watching the stock ticker all day.” Borrowers may not be in a rush if a) they think rates are going to drop, b) they’re purchasing and they think property values are going to drop, c) they’re nervous about their job or their savings going away.

Joke of The Day (Besides Investor Joke Above)
Why do mummies have trouble keeping friends?
They’re so wrapped up in themselves…

 

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