I was at my dog’s vet yesterday, and when the assistant asked, "How's work?", I explained to her, as best as I could, what's been going on, and how it will hit the real estate market, etc.  You know what she said?  "I'm working with a mortgage broker right now to help me find foreclosed homes so that I can buy my first house". And no, that is no joke.

Yesterday Retail Sales and Business Inventories came out about as expected. But as we’ve mentioned, pure economic news has been taking a back seat in moving the market to what the investors and the Fed is up to in injecting liquidity. This morning, however, economic news took center stage, unfortunately in a negative way. Headline and core Producer Prices were expected to each rise 0.2% in July after dropping a larger-than- expected 0.2% in June, but came out stronger (more inflationary) at +.6% and +.1%. The 10-yr Treasury note shot up to 4.80% and 30-yr A-paper loans are worse in price by almost .250.

Shares of Thornburg Mortgage fell to a 52-week low after S&P downgraded its credit rating citing the "unsteady state of secured financing capital markets" that the company relies upon to fund operations. The credit-rating downgrade means Thornburg will likely have to pay higher interest or provide more collateral to borrow money in the future. Higher borrowing costs and reduced available money in the capital markets could put a dent in the company's bottom line and force Thornburg Mortgage to cut its dividend, according to the news story.

Less than two years after its launch, Trump Mortgage is gone, due to the market and the disclosure that the firm's chief executive, E.J. Ridings, had inflated his credentials, the outfit never came close to reaching its financial goals. Donald Trump said that it was just a “licensing deal” and he didn't have an ownership stake. Trump is, however, licensing his name to First Meridian Mortgage, a lender that is being renamed “Trump Financial”.

Option One has trimmed 185 account executives from its work force as part of a restructuring plan, reporting that more cuts may lie ahead.

Express Capital Lending, located in Newport Beach CA, sent an e-mail out saying, “Due to current volatility in the mortgage market, we are not accepting new submissions until further notice. Once circumstances improve, we will notify our brokers of new programs and guidelines.”

Nat City has reiterated their view of stated income loans (must make sense) and tightened their appraisal requirements. In addition to general FNMA and FHLMC underwriting guideline rules, they also state, “at least 2 comps must be 6 months or less. The third may be within 1 year, distance of Comps must be less than 1 mile for urban; within 1 mile for suburban or within 10 miles for rural, the gross and net adjustments must stay within Agency guides, and the sale prices of comps and adjusted values must bracket the subject property.”

Citigroup, the biggest U.S. bank by assets, could lose as much as $3 billion in the third quarter because of the credit crisis, according to analysts at Sanford C. Bernstein & Co. LLC. Citi may lose between $1.2 billion and $1.5 billion on loans to buyout firms and between $500 million and $1 billion on subprime mortgages.

This morning’s inflationary PPI did not help the chance of an early Fed ease. And the odds of a Fed rate cut as soon as this month fell as the European Central Bank lent emergency money to banks for a third day and declared that markets are returning to normal amid a rout in investments tied to U.S. subprime  mortgages. Analysts believe that the Fed and ECB actions in the funding markets are going to help “weather the storm”. The risk, of course, is that the extra liquidity won't keep money flowing through the financial system, threatening to push up borrowing costs on everything from mortgage loans to credit cards and hobbling economic expansions. That may force central banks to rethink their monetary policy strategies.

What are borrowers being told to do if their loan is among the $1 trillion in mortgages scheduled for payment increases by the end of the year? “Know where you stand” by digging out loan documents and learning when, and to what, it is going to adjust, or if there is a prepayment penalty. “Have your credit checked”, suggesting that someone with credit scores in the 700’s that is able to document his or her income and who wants a loan for 95% or less of the home's value has plenty of options. “Figure out your equity” by using an engine such as Zillow, RealtyTrac, or Domania, or talking to local real estate agents. Lastly, “Start shopping” for a reputable mortgage lender.