An important monkey tale…
Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each. The villagers seeing that there were many monkeys around, went out to the forest, and started catching them. The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort.
He further announced that he would now buy them for $20. This renewed the efforts of the villagers and they started catching monkeys again. Soon the supply diminished even further and people started going back to their farms.
The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!
The man now announced that he would buy monkeys at $50! 
However, since he had to go to the city on some business, his assistant would now buy on behalf of him.
In the absence of the man, the assistant told the villagers “Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each.”
The villagers rounded up with all their savings and bought all the monkeys.
Then they never saw the man nor his assistant, only monkeys everywhere!
Is that how subprime mortgage brokering works? (Rhetorical question – no need to answer.)

Who is right? The Wall Street Journal reported that Countrywide is the subject of an “inquiry”, and the New York Times, which cited anonymous sources, said the Justice Department is also involved in a Countrywide investigation. The FBI would not confirm if Countrywide is “under investigation” but said there is an “open investigation,” since the FBI has been investigating potential fraud in the mortgage/sub-prime lending industry. Per the WSJ, investigators are looking at evidence that may suggest that company executives knew their mortgage securities would see many more defaults than predicted in its public documents. “We are not aware of any such investigation,” Countrywide spokeswoman Susan Martin told the NY Times.

Thornburg Mortgage said on Friday that it failed to meet $610 million of margin calls and its counterparties have agreed to hold off until the end of the day to give the company time to come up with a solution to its liquidity crisis. Thornburg had received notices of default from four different lenders by the end of Thursday, it also noted. President and Chief Executive Larry Goldstone said, “The mortgage financing market’s complete inability to differentiate and appropriately value superior AAA-/AA-rated mortgage securities from all other mortgage assets is as unprecedented as it is frustrating.” He added, “Quite simply, the panic that has gripped the mortgage financing market is irrational and has no basis in investment reality.”

GMAC made changes to their jumbo products, replacing their “Standard Processing Style” with “Full, Lite, One Paystub and Fast.” They also changed their jumbo products with “Stated Income Documentation Type” to include only certain types of employment eligibility, such as self employed borrowers must “reflect income and specific source of income’, all income must be derived from sources within the United States, etc.

Looking back to Friday, we had a nice improvement in both Treasury rates and mortgage prices after the payroll numbers indicated that labor is indeed slowing. The market believes that the Fed will lower overnight interest rates by 75 bps at the FOMC meeting next Tuesday, and some think that Fed Funds may eventually hit 2.0%. Friday’s job report had very little “good” news for the economy, as NonFarm payrolls dropped for the second consecutive month, with back-month revisions downward, and most industries showed job losses. This week we’ll see the US trade deficit report tomorrow (expected -$59 billion), Thursday’s weekly jobless claims (expected +4k to 355k), February Retail Sales (expected +0.8%), and then on Friday the Consumer Price Index for February (expected +0.3%) and the University of Michigan’s Consumer Confidence report (expected -0.4). Currently the 10-yr is at 3.53% and mortgages are roughly unchanged from Friday.