The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.

Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting.

Proposed changes in accounting rules that could force Fannie Mae and Freddie Mac to move certain Mortgage Backed Securities (MBS) onto their balance sheets should not have a major impact on their capital requirements, according to the Government Sponsored Enterprise (GSE) regulator.

The Office of Federal Housing Enterprise Oversight is working with the Financial Accounting Standards Board on changes to FAS 140, OFHEO Director James Lockhart indicated.

The two government-sponsored enterprises already have a 45-basis-point capital charge on their guaranteed MBS, he noted. Investor concerns that an accounting change would trigger a dramatic rise in their capital requirements "makes no sense," Mr. Lockhart said.

Wall Street stock investors dumped Fannie and Freddie shares on Monday on fears that the GSE might have to raise $75 billion in new capital due to accounting changes.

In an interview on CNBC-TV, Mr. Lockhart stressed that Fannie and Freddie are adequately capitalized and have raised $20 billion in new capital over the past seven months.

Fannie Mae and Freddie Mac See Sell-Off

“IndyMac has announced they will no longer accept any new loan submissions or rate locks in either retail or wholesale, and are closing their “forward” mortgage business.”

Citing regulatory pressure to maintain its capital levels, IndyMac is shifting away from and shutting down much of its forward mortgage origination business to focus on its Reverse Mortgage unit, Financial Freedom, according to a letter from chief executive Mike Perry posted on IndyMac’s corporate blog.

IndyMac said as of July 7 it would no longer accept any new loan submissions or rate locks in its retail and wholesale forward mortgage lending channels, except for its servicing retention channel and would cut roughly half its staff of 7,200 over the next couple of months.

The company said it plans to honor all its existing rate locked loans and continue to fund them.

“While the managers and employees in these units have worked incredibly hard, these units are not currently profitable due to the continuing erosion of the housing and mortgage markets,” Mr. Perry said. “At the same time, these operations take up significant balance sheet capacity and ‘feed’ growth in the servicing asset, an asset we need to shrink given its size relative to our existing capital.”

Fed Funds Implied Probability

Ben Bernanke says US Monetary Policy is ‘well positioned’; Wachovia fell for second day after ousting CEO Kennedy Thompson; Analysis by Mark Howard, Barclays Capital Head of Credit Analysis.

Shakeups at Washington Mutual and Wachovia. Roundtable Discussion with Andrew Seibert of Nextier Wealth Management and Forbes CEO Steve Forbes.

Washington Mutual shares are down after Kerry Killinger stepped down as chairman. Shares of Wachovia are falling below it’s lowest value in almost 13 years after Ken Thompson was ousted.

Chairman Lanty Smith has been appointed interim CEO. Is this new management what these companies need to get back on track? Are there more troubles for financials?

I think their values will go lower until they get a feel for who will take over. There are probably more Writedowns to come.

These banks have not gone beyond the problem of the Subprime Mortgage Industry and there is possibly another shoe to fall.

If the Credit Deterioration continues, there will be many more problems.

Wachovia has big news today. Shares of falling in the premarket after the company ousted CEO Ken Thompson.

Wachovia stated he is stepping down at the request of the board, saying no single precipitating event calls because the board to reach the decision, but a series of previously disclosed disappointments and setbacks cumulatively have negatively impacted the company and performance. Perhaps you can call it an understatement.

Shares down 57% in the past 12 months.

Washington Mutual , hard-hit by the mortgage and credit crises, will replace Chief Executive Kerry Killinger as chairman of the board.

Sharpest Declines in California, Nevada and Florida;
Small Price Increases in Strongest Markets

U.S. home prices fell in the first quarter of 2008 according to OFHEO’s seasonally-adjusted purchase-only house price index. The index, which is based on data from home sales, was 1.7 percent lower on a seasonally-adjusted basis in the first quarter than in the fourth quarter of 2007. This decline exceeded the 1.4 percent price decline between the third and fourth quarters of 2007 and is the largest quarterly price decline on record. Over the past year, prices fell 3.1 percent between the first quarter of 2007 and the first quarter of 2008. This is the largest decline in the purchase only index’s 17-year history.

OFHEO’s all-transactions House Price Index (HPI) which includes data from home sales and appraisals for refinancings, showed less weakness than the purchase-only index. The all-transactions HPI fell 0.2 percent in the latest quarter and was flat over the four-quarter period.

The figures were released today by OFHEO Director James B. Lockhart, as part of the quarterly report analyzing housing price appreciation trends. “These substantial home price declines bring positive and negative news,” said Lockhart. “For homeowners and financial market observers, these declines spell further erosion in home equity levels and potentially more trouble for mortgage markets. To prospective home buyers who have been shut out of homeownership because of affordability constraints, these declines may be welcome news, as are continued low mortgage rates“.

Both OFHEO’s purchase-only index and its all-transactions index show much more muted price declines than do other house price indexes. “While house price declines are widespread, homes financed with prime, conforming mortgages continue to hold up better than those financed with other types of mortgages, a phenomenon we’ve been observing for the last several quarters,” Lockhart said.

With this release, OFHEO continues its publication of its monthly price index, which was introduced in February. Monthly price trends are shown on pages 8 and 9 and are provided for months through March. Between February and March, prices fell 0.4 percent nationally on a seasonally-adjusted basis, and they have fallen a total of 3.7 percent since their April 2007 peak.

New foreclosure filings rose 4% in April and were nearly 65% higher than the level recorded a year earlier, according to RealtyTrac.

The company’s U.S. Foreclosure Market Report indicates that foreclosure filings, default notices, auction sale notices, and bank repossessions were reported on 243,353 properties in April.

"The total number of U.S. properties with foreclosure activity in April was the highest monthly total we’ve seen since we began issuing the report in January 2005," said James J. Saccacio, RealtyTrac’s chief executive officer. "Although only about 2% of households nationwide are in foreclosure, these properties contribute to already-bloated inventories of homes for sale and put downward pressure on home values."

The company noted California, Florida, and Ohio recorded the highest foreclosure rates in April.