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Corporate CEOs Feeling The Pinch 
The "Credit Crunch" has found its way into the offices of some of the countrys most powerful CEOs.

Citigroup's Charles Prince retired under pressure, saying that retirement was "the only honorable course..." amid write-downs of between $14.5 billion -$17.5 billion on securities tied to subprime mortgages.

Coluntrywide's Board of Directors received a request from a pension plan requesting that Angelo Mozilo, Chairman and CEO, be fired after Countrywide's 3rd Quarter profits dropped 47% after subprime loan losses.

After Merrill Lynch took a $7.9 billion write-off due to losses in the subprime market, Chairman and CEO Stanley O'Neal resigned after underestimating the size of the loss.

At Bank of America, 3rd Quarter profit fell 32%, while non-performing loans doubled to $3.3 billion. Ken Lewis, Chairman, CEO and President, is feeling the heat as delinquency rates rise.

After many months of many Americans struggling to pay their mortgage payments and keep their homes, the decision makers on Wall Street are now feeling some of the pain. The problems that have occurred in the subprime mortgage are far reaching and there is plenty of blame to go around.

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Federal Reserve Officials Make Comments 
Yesterday was full of information and opinions from Federal Reserve officials. Speeking in New York City, Fed Governor Frederic Mishkin said the Fed's mort recent rate cut was not an indication that the Fed was going to continue easing. He said the cut was due to forecasts of a slowing economy, but that the Fed would reverse field and increase rates if inflation increases or if economic growth accelerates.

This comment should make everyone who is expecting The Fed to continue cutting rates to take notice. Fed Chairman Bernanke is widely viewed as an inflation hawk and Mishkin is saying that The Fed is still on inflation watch and have not changed their position.

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Pimco's Bill Gross Interview 
I saw an interview with Bill Gross, Chief Investment Officer of Pimco, manager of the nations largest bond fund. He had some interesting thoughts.

He felt that although personl spending has been propping up the economy, he feels that personal spending will moderate. He believes that many people are spending using their home as an asset, but that will change. With property values in some areas declining and as credit requirements for mortgages and home equity loans become more restrictive, it will become increasingly more difficult for homeowners to borrow their equity and then spend it.

Due to the impact this change in personal spending will have on the economy, he felt that the Federal Reserve will have to continue to reduce interest rates. His opinion was that 30 year fixed rates might drop into the 5.0% - 5.5% range. I hope he's right. Rates at that level would be good for everyone. Have a great Monday!

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Yet Another Good Friday 
The Labor Department's October Nonfarm Payroll Report showed an increase of 166,000 new jobs for the month. This was almost double analysts expectations and caused the bond market to lose ground. Oddly enough, however, it started to rally and recovered its early losses and ended the day up a couple of basis points. Normally, a large Jobs Report is bad for interest rates because it means that the economy is growing and that the Fed doesn't need to help it along with rate cuts. The rally could be an indication that bond traders feel the Labor Department made a mistake in their survey and we didn't really see 166,000 new jobs created last month.

Enjoy the extra hour of sleep. Have a great weekend.

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Fed Reserve Fall-out 
As everyone probably knows, the Federal Reserve has chosen to reduce both the Fed Funds rate and the Fed Discount rate by .25%. This decrease will translate into a .25% decrease int the Prime Rate, which we will then see in Home Equity Lines of Credit (HELOC) over the next 30 days.

The news was greeted positively by stocks. This morning, however, is a different story. The Dow is down roughly 200 points, while the Nasdaq has been down more than 35.

Mortgage bonds have responded in just the opposite manner. Prior to the release of the news, there was a small rally, but then mortgage bonds experienced a sell-off on the news which caused them to close the day down 33 basis points. This morning, they have recovered half of yesterdays' losses, which translates into a 1/8 - 1/4 point (not percent) increase from lenders.

On purchase transactions, points are paid out of pocket at the time of settlement. On a $100,000 mortgage, one point is equal to 1.0% of the loan amount, or $1,000. A 1/4 point is then equal to $250. If you spread that over 30 years or 360 months, it would cost $0.69 per month.

As you can see, the Fed's action was basically a non-event for mortgage rates. Have a great Thursday.

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