Many saw that Countrywide’s stock price dropped 25% yesterday morning into the $5-range, but then bounced right back. The plunge was based on rumors of a credit downgrade, a possible bankruptcy filing, and some bad press in the New York Times about Pennsylvania borrowers and CW fabricating letters. One trader, who works for a large investment bank, wrote to me and said, “Investors are literally buying thousands upon thousands of puts to bet on its demise - keep in mind every thousand puts is equivalent to 100,000 shares of stock - I have seen about 100K puts change hands myself - that's 10 million shares!”

Fortunately Countrywide published a denial and the stock regained much of what it had lost. But the markets are still nervous, especially with Jefferies (a Wall Street dealer) announcing a $24 million loss for the fourth quarter, the company's first loss ever. Countrywide Financial announced their 4^th quarter results. "Our fourth quarter ended with a number of positive operational trends…Total loan fundings were $24 billion for the month of December, up slightly from November 2007 and ahead of our forecasts. This pushed our fourth quarter fundings to $69 billion, also exceeding our expectations. Although average daily mortgage loan applications and the pipeline of mortgage loans-in-process decreased from November, this reflected a seasonal decline typically seen this time of year.”

According to FNMA, and rate sheets everywhere, average rates for 30-year fixed-rate mortgages were at 5.7% as of Monday. The last time conforming rates last dipped this low was in September 2005, when the rate was 5.65%. Now, if only jumbo rates would follow… The all-time low for fixed-rate mortgages was in 2003, when rates dipped below 5%. US Mortgage Applications jumped 32%, the largest gain since 2001, led by refinancing apps up 54%. Purchase applications increased 14%. Definitely positive news! Speaking of low rates, the 3-month LIBOR rate has reached a 26 month low, moving below 4.50%, and down .75% in a month! To some extent this was expected as year-end liquidity issues were resolved. 

EquiFirst, headquartered in Charlotte, NC with a second Centralized Operations Center in Phoenix, Arizona, was rumored to have laid off 20% of their 1400 total employees and over 500 account executives. Equifirst laid off another 20% of its workforce yesterday, even the AE’s that were producing $800K a month average over the last three months. Rumor has it that the only thing that will save them is FHA.

The spread between conforming and jumbo rates remains wide: 1.25-1.375%. The increase in jumbo loan rates is yet another consequence of the subprime mortgage crisis. Because of the increase in delinquencies and foreclosures, investors are jittery about buying mortgage loans that don't conform to guidelines issued by Fannie Mae and Freddie Mac, institutions that buy mortgages from lenders. So lenders had to raise the rates on jumbo mortgages to entice investors, but of course the wider differential can add hundreds of dollars to monthly payments, forcing some would-be home buyers to defer their dream and others to scramble to find ways of lessening the burden. What can originators advise? Breaking the mortgage into two loans, paying points up front to reduce the loan rate, negotiating harder with the seller to lower the sale price, and making a bigger down payment seem to be the front-runners.

A group of friars were behind on their belfry payments, so they opened up a small florist shop to raise funds. Since everyone liked to buy flowers from the men of God, a rival florist across town thought the competition was unfair. He asked the good fathers to close down, but they would not. He went back and begged the friars to close. They ignored him. So, the rival florist hired Hugh MacTaggart, the roughest and most vicious thug in town to "persuade" them to close. Hugh beat up the friars and trashed their store, saying he'd be back if they didn't close up shop. Terrified, they did so, thereby proving that only Hugh can prevent florist friars.

Rob