Here's your financial vocabulary lesson for today:

"Liquidity" - When you look at your investments and wet your pants.

First Federal of California is the latest lender to close their wholesale channel to brokers. I imagine the following announcement prompted yet another round of rumors and calls to the remaining wholesalers like Wells, SunTrust, Flagstar, etc.: “First Fed has closed its Wholesale Residential Lending Division effective today, January 26, 2009. Files received today, January 26, 2009, will be returned un-processed. Files that have not been previously approved (in suspense) as of January 26, 2009 will be declined.  All files that are approved and in the funding process must be funded by February 27, 2009, and only files that satisfy all of the Bank’s conditions by such date will be funded. Any fees previously collected on a file that has not been approved will be returned within 30 days.”

Franklin American, reflecting the market, adjusted their FHA guidelines. “Effective for locks on or after Wednesday, January 28, 2009, all loans must meet the new guidelines as stated below. Loans meeting previous guidelines must be purchased by Tuesday, March 31, 2009. Minimum Credit Score All FHA and VA loans must have a minimum 600 credit score, regardless of any AUS decision or approval status. This requirement will not affect FHA non-credit qualifying streamline refinances and VA IRRRL’s or any loan classified as an FHA Jumbo (FHA Jumbos require higher credit score requirements). Mortgage Payment History-FHA Streamlines and VA IRRRL’s. All FHA streamline refinances and VA IRRRL’s require the borrower to not have had any late payment on any mortgage account during the last 12 months. Late payments are defined as any 30-day or greater mortgage late.”

Are we having fun yet?

“Fannie 4.5’s are trading above 101.” What does that mean for a broker? Apparently not much, since investors are all offering rates in the mid-to-high 5’s. If the MBS market is pricing 4.5% securities, which typically include 30-yr mortgages from 4.75-5.125%, at one point back, plus the value of the servicing, why aren’t mortgage brokers seeing that price from investors? Well, the next time you go into a retail bank branch of Wells, or Citi, or Chase, I imagine that you’ll see those rates…

Wells Fargo, with their stock down dramatically in recent weeks, will extend its mortgage modification program to customers of Wachovia. 478,000 Wachovia customers, with loans totaling about $120 billion, will have access to the program, and the customers within this portfolio that are being referred to foreclosure or are in foreclosure will receive an extension until Feb. 28 so they can apply for the modification program which includes the goal of reducing mortgage payments to about 38 percent of the size of a customer's income.

Ah, back to the market. Yesterday we had some interesting economic news. The Conference Board’s Leading Economic Index rose .3%, which is the first gain in six months. Four of the 10 indicators the report were positive, unfortunately led by a 0.99 percent increase in the money supply adjusted for inflation, which is due to increased lending and purchases of securities by the Federal Reserve to unclog credit markets and ease borrowing costs.  We also had Existing Home Sales unexpectedly rise 6.5% in December, mostly attributed to prices being down and a brisk market in foreclosures.

What is weighing prices down, and keeping rates relatively high given the current state of the economy, is the supply coming on to the market. On top of the $2-3 billion or so of daily mortgage origination, we have a record $40 billion 2-yr note auction today and a record 5-yr note auction Thursday. There are always worries about who will soak up the supply, and the holiday in Asia tends to add to this consternation. The Fed’s meeting today and tomorrow is expected to result in no change to their 0-.25% overnight rates, but analysts will be watching for any change to their language in the post-meeting wrap up. They are exploring the purchase of longer-dated Treasury securities in an effort to push up their price and bring down their yield in order to reduce long-term borrowing costs at a time when the Fed can’t lower short-term interest rates any further because they are effectively at zero. Speaking of rates, the 10-yr is at 2.63% and mortgages are roughly unchanged.

A little guy is sitting at the bar just staring at his drink for half an our when this big trouble-making biker steps next to him, grabs his drink, gulps it down in one swig and then turns to the guy with a  menacing  stare as if to say “What cha gonna do about it?”

The poor little guy starts crying.

“Come on man I was just giving you a hard time,” the biker says. “I didn't think you'd CRY. I can't stand to see a man crying.”

“This is the worst day of my life,” says the little guy between sobs. “I can't do anything right. I overslept and was late to an important meeting, so my boss fired me. When I went to the parking lot, I found my car was stolen and I don't have any insurance. I left my wallet in the cab I took home.  I found my wife in bed with the gardener and my dog bit me. So I came to this bar trying to work up the courage to put an end to my life, --- and then you show up and drink the damn poison.”