Interest rates are set in two primary ways. With the Fed meeting today and tomorrow, remember that short term rates (credit cards, ARM’s, HELOC’s) are highly influenced by the Federal Reserve. And the Fed keeps a close eye on inflation: if the Fed fears that prices are rising too fast, it will raise rates to slow the economy. But longer term rates, like 30-yr mortgages, are set in the open market. They are partly a bet on how well the Fed will control inflation but also reflect supply and demand. Basically, if there are lots of people with money to lend, and not so many who want to (or are able to) borrow it, rates go down. Rising commodity prices, however, are complicating the Fed’s job – it cost me $40 to fill up my Prius yesterday on my way to buy rice!

Bank of America plans to drop the Countrywide Financial name after it closes on its purchase, expected in July. Chief Executive Officer Ken Lewis told shareholders at that bank’s annual meeting of the plans to discontinue using the Countrywide name. They’d also told the Federal Reserve that it plans to boost Countrywide’s lending standards, eliminating subprime loans and option adjustable-rate mortgages that include a feature in which the loan balance actually rises over time if borrowers routinely make the minimum payment permitted. BofA also announced plans to help 265,000 troubled borrowers keep their homes over the next two years by refinancing or modifying at least $40 billion in mortgages, and double its community development lending, which focuses on affordable housing, small businesses and people in low-income and minority neighborhoods, to $1.5 trillion over 10 years. Countrywide posted an $893 million first-quarter loss, hurt by deteriorating mortgage market conditions, equal to $1.60 per share compared with a profit of $434 million, or 72 cents, a year earlier.

Wells Fargo announced a further restriction on their non-conforming products. Effective Friday, borrowers in non-conforming loans (not agency jumbo) must have a minimum FICO of 700. Wells also eliminated their non-owner occupied product for non-conforming.

CEO Fred Buenrostro, the chief executive officer of the California Public Employees’ Retirement System (Calpers), the biggest U.S. pension fund, said he would “retire”. He will leave the fund which manages roughly $240 billion, to pursue “private sector opportunities,” (maybe I don’t know what “retire” means). This comes less than a week after Calpers said Chief Investment Officer Russell Read was resigning to pursue environmental investments.

Many homeowners facing ARM resets today will find that their interest rates may either be lower or stay the same - instead of jumping up as some had predicted. Unfortunately homeowners are defaulting on their mortgages even before their payments reset in record numbers – could they afford the house in the first place? Five years ago, if a borrower closed on a 5/1 ARM with a margin of 2.75 above the one-year Treasury rate with an initial rate of 4.75%, the new rate would be about 4.5%!

There is not much going on in the markets today, aside from a smattering of economic news later this morning. The 10-yr sits near 3.81% and mortgage prices are about .125 better this morning. At 6AM PST we had the S&P/Case-Schiller Home Price Index. More importantly, at 7AM we’ll see the April Consumer Confidence numbers. The FOMC meeting begins today, adjourning tomorrow at 11:15AM PST with their announcement. Although experts predict billion more of write-downs coming at us, GDP is relatively stable, and, coupled with impending tax rebates, some think that a recession might be somewhat muted. The FOMC meets amid the news on inflation and the overall condition of financial markets, and most expect them to cut rates by 25 basis points.

An old, blind cowboy wanders into an all-girl biker bar by mistake. He finds his way to a bar stool and orders some coffee. After sitting there for a while, he yells to the waiter, “Hey, you wanna hear a blonde joke?”

The bar immediately falls absolutely silent. In a very deep, husky voice, the woman next to him says, “Before you tell that joke, cowboy, I think it is only fair, given that you are blind, that you should know five things:

1. The bartender is a blonde girl with a baseball bat.

2. The bouncer is a blonde girl.

3. I’m a 6-foot tall, 175-pound blonde woman with a black belt in karate.

4. The woman sitting next to me is blonde and a professional weight lifter.

5. The lady to your right is blonde and a professional wrestler.

Now, think about it seriously, Mister. Do you still wanna tell that joke?’”

The blind cowboy thinks for a second, shakes his head, and mutters, “No, not if I’m gonna have to explain it five times.”

Rob Chrisman