Was the Fed's Cut Enough? 
Yesterday the Federal Reserve Open Market Committee (FOMC) decided that the economy needed a little boost and reduced the Fed Funds rate by 0.25%. This is the rate banks charge each other for overnight loans. The 1/4 point was widely anticipated, but the FOMC didn't deliver the 0.50% the markets wanted on the Fed Discount Rate.

The Discount Rate is the rate the Fed charges banks to borrow from the Fed. A 1/2 point decrease in the Discount Rate would have a been a more aggressive move, providing liquidity to the mortgage market and signaling that the Fed wanted to be pro-active.

I have heard some rumors that we may see something very unique from the Fed in the next few days. Stay tuned.

Have a great day.

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Washington Mutual Next in Line 
Washington Mutual Inc. (WaMu) announced huge layoffs and massive write-downs yesterday. WaMu, one of the nations largest lenders, is the latest to be affected by the downturn in the lending industry.

WaMu has been one of the most aggressive lenders in the country, continuing to market their payment options arms. These are the programs that allow a borrower to make a very small mortgage payment, while deferred interest is being added to the balance of the mortgage. This process is known as negative amortization, and is one of the reasons that there are ao many borrowers having difficulty making their payments. When the rate adjusts, the new payment is based on the now larger mortgage balance, creating cash flow problems.

The intended layoffs will represent 22% of thier staff, or roughly 2,600 employees. They will also close over half of their home loan centers, which are retail offices, and 9 Processing Centers used in their wholesale origination business.

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The Federal Reserve - How Much is Enough? 
Well, The Federal Reserve Open Market Committee (FOMC) meets tomorrow, and the debate among the experts is whether or not they will cut rates .50% (50 basis points) or .25% (25 basis points).

My money is on .25%. For what it's worth, I think the Non-farm Payroll Report last Friday was large enough (94,000 new jobs) to allow Big Ben (no, not Roethlisberger, Bernanke) and his band of policy makers to take the safe route. The Fed has been waffling a little bit over the past few months, trying to determine whether the risk of inflation was outweighing the necessity to stimulate the economy and avoid a recession.

And we think we have it tough with our jobs. It must be wild to have the weight of the country's economy, and people's well-being, on your shoulders.

Look for a .25% and watch your Home Equity Lines of Credit go down accordingly. It looks like we are going to save a little interest over the short term.

Have a great day.

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Will the Federal Reserve Cut Again? 
The Federal Reserve Open Market Committee (FOMC) meets next week for their last meeting of 2007. As always, the ecomomists and Fed watchers are chattering about the direction the Fed will take regarding interest rates.

Most of us are hoping for a rate cut, thinking it will stimulate the housing market and the mortgage market. Unfortunately, any rate adjustment the Fed makes typically takes 6 months to filter through the economy, so the overall effects are not felt immediately.

What we do feel immediately is a change in the Wall Steet Journal Prime Rate. Prime adjusts almost instantly once the Fed releases its decision. This is great for those of us with Home Equity Lines Of Credit, because our rates drop the corresponding amount.

This is where it can get frustrating. Some banks have a policy that allows them to wait up to 45 days before they drop your HELOC rate. The benefit to the policy is that if rates are on the rise, they typically wait 45 days then as well. The bottom line is that a rate cut always has some positives.

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Merrill Lynch Hires New CEO 
John Thain has been tabbed to become the new CEO of Merrill Lynch. He was the head of The New York Stock Exchange. This is the first time Merrill has hired a CEO that was not a promotion from within, which should be viewed as a good thing in light of their recent troubles.

In early October, Stanley O'Neal, then CEO, thought the write-down for losses due to the subprime market would be roughly $4.5 billion. On October 24th, Merrill reported their biggest quarterly loss in history, driven by a revised bad debt write-down of $7.9 billion, causing O'Neal to resign.

The rather swift choice of Thain seems to be agreeable with Wall Street. Merrill's stock price rose over a $1 per share yesterday.

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