A man owned a small mortgage company in Wisconsin. The Wisconsin State Wage & Hour Department claimed he was not paying proper wages to his help and sent an agent out to interview him.  "I need a list of your employees and how much you pay them," demanded the agent.

"Well," replied the mortgage banker, "there's my funder who's been with me for 3 years.  I pay him $600 a week plus free bagels and donuts.  The processor has been here for 18 months, and I pay her $500 per week plus lunch and parking.   Then there's the half-wit who works about 18 hours every day and does about 90% of all the work around here.  He makes about $100 per week, pays for his own meals, and I buy him a bottle of bourbon every Saturday night.  He also sleeps with the wife occasionally."

"That's the guy I want to talk to --- the half-wit," says the agent. "

"That would be me, replied the mortgage banker.

Some analysts are looking at the BofA/CW deal and observing two things. First, Angelo Mozilo does not have a guaranteed spot on BofA’s board of directors, in spite of being rumored to earn over $100 million in possible severance, and BofA is not planning to enhance CFC's liquidity in the time period between now and the close. This latter point is important in that Countrywide appears to be on its own as a public company until the close, and must stand on its on financials

The FHA program appears to be under renewed scrutiny within the Federal government. Delinquencies are beginning to increase as originators regard it as “the new subprime.” Some investors are considering the 5% declining area adjustment, or additional fees, that have appeared with conforming and some jumbo loans. Flagstar may have already put these adjustments in place at the retail level.

Getting back to a full doc world isn't such a bad thing, is it? Apparently not, as the following illustrate! (Be sure to check investor sites for full details.)

• Chase (JP Morgan) is enacting the following: eliminating the Re-Active SISA findings, an across the board 5% LTV/CLTV reduction in product structures for high risk states (this includes CA), and the ALT A product suite will be gone. They are eliminating the following products: Alt A product suite, 103% Fixed Rate and LIBOR ARM, DreaMaker Opportunity Interest Only, and MyCommunityMortgage Interest Only. Chase also increased FICO Requirements: Minimum 660 FICO for Non-Agency 30 and 15 Year Fixed Rate and LIBOR ARMs, minimum 720 FICO for all Non-Agency 40 year term loans, and minimum 720 FICO for all Non-Agency Interest Only loans. They decreased maximum allowable LTV/CLTV: agency loans restricted to maximum 95% CLTV, non-agency loans restricted to a maximum 90% LTV/CLTV, and excluded subordinate financing provided by an Affordable Housing Second.
• Indymac: for their non-agency products (Alt-A Preferred, Super Jumbo) said that “Interested party” contributions are limited to 3% on New Construction and homes identified as being in Declining Markets, written VOE’s will no longer be allowed for Full Doc, VOD’s will no longer be allowed for asset verification (All Doc Types), Indy will finance a maximum of 3 properties (it was 10), for 2^nd Home and NOO properties the borrower may not own more than 10 financed properties (was 20), for NOO properties the borrower must now show evidence of past investment property ownership with 12 month mortgage history.
• In addition to that, Indy announced that as of Friday 1/11/08, the Lender Insured MI option was discontinued for all products.
• Chevy Chase is indeed closing their wholesale division. (They had combined both divisions some time ago.) They will honor locks that we have with them, and continue with fundings, but as of today will no longer accept locks.
• Wells Fargo announced that effective for all conventional conforming and non-conforming loans locked on or after Jan. 17, 2008, requirements for determining the minimum payment used in the qualifying ratios will be eased.
• Thornburg said it is raising $200 million of long-term capital in two public offerings. Thornburg lost about $1.08 billion in the third quarter, and it is raising $200 million of long-term capital in public offerings.
• FBR said that its subprime mortgage subsidiary, First NLC, would file for bankruptcy protection. FBR Group said that it was likely to lose all of its investment in the firm. 
• NovaStar is cutting 170 of its 200 jobs as it discontinues its retail and brokerage operations to conserve money and reduce debt.

Are we in a recession, defined by the number of quarters of declining economic activity? Many think so. We have seen a rise in unemployment in recent months.  Coupled with the ongoing slide in housing, this sets the stage for a pullback in real consumer spending. The current trend in thinking seems to believe that a recession will be modest and followed by a modest recovery in 2009. But don’t look for a big jump in housing activity – it will likely remain depressed, according to “experts, employers will watch their hiring carefully, consumers will continue to spend cautiously, and recapitalization of the financial sector may take time.

This morning’s news enforces that view. Producer prices unexpectedly fell 0.1% in December. Granted, the surprise was concentrated in energy prices, which fell 1.4% after soaring 14.1% in November, reflecting a 4.8% drop in gasoline prices and a 0.1% drop in residential gas that more than offset a 1.3% jump in food prices. Core prices were +.2%, as expected, and up 2.0% for the year. Overall, the PPI is up 6.3% over a year earlier, down from a 7.2% annual pace in November but otherwise the strongest pace in more than two years. Retail Sales dropped significantly, -.4% for December. 2007 had the smallest gain in 5 years, up only 4.2%. After the news rates have improved: 3.72% on the 10-yr and 30-yr conforming prices better in some coupons by .25 in price.

Rob