Ken Lewis held a town hall meeting for Countrywide employees 3 days ago. According to my sources, he said that the dividend is safe (this information is mainly for the consumption of Wall Street) and encouraged employees to open bank accounts.

Today, news comes that Countrywide is just leveling the staff of Bank of America. Virtually everyone outside of California has already gotten their walking papers and bad news is likely to sweep through the halls of Calabasas later today.

It seems that the only people who did well at Countrywide were the most senior management. The rest of the folks, including senior management, but not the most senior, is left with nothing. Unfortunately, these days that seems to be much too frequently the outcome at major banks.

Thanks Angelo.

BusinessWeek says that option ARMs are the next peg to fall in the housing crisis.

" The Mortgage Bankers Assn. said on June 5 that the option ARM problem is growing. The group reported that the national rate of foreclosure starts for prime ARMs, including option ARMs, increased to 1.55% in the first quarter, up from 0.53% a year earlier. In California the foreclosure start rate in the first quarter was 2%, vs. 0.5% a year earlier. In Florida, the rate was 2.57%, compared with 0.5% in the first quarter of 2007. "California, Florida, Arizona and Nevada combined…represent 62% of all foreclosures started on prime ARM loans, and 84% of the increase in prime ARM foreclosures," the group said.

The option ARM loan defaults could accelerate next year even if subprime defaults subside, said Chandrajit Bhattacharya, vice-president and mortgage strategist at Credit Suisse Securities. He said California will see the bulk of the option ARM foreclosures and the rest will be spread out across the country."

Tens of thousands of consumers with decent credit got in over their head with real estate and the bill is coming due over the next couple of years.

A few years ago, there was a market collapse. People were seething and needed a fall guy. In order to restore confidence and give people what they wanted the SEC and DOJ were easily able to get a hold of the Enron guys, Bernie Ebbers and Dennis Kozlowski. All were convicted and I believe that all were guilty.

We have a similar situation today, which is in fact in many ways more dire. The collapse of a certain sector of the economy (the housing sector) has now spread throughout the economy like a virus and has taken apart many previously-thought solid financial institutions. It doesn't take long to trace the originator of the current mess. It is Countrywide and it is Angelo Mozilo.

Mozillo recently sold Countrywide to Bank of America at around $6 a share in an all-stock transaction after the stock traded over $45 less than a year ago. The terms of the transaction - which provide Mozillo a $100 million golden parachute are suspect enough. However, it isn't even certain that the transaction will go through. As the Wall Street Journal reports, conventional wisdom is now that Bank of America will bail out of the transaction before closing, leading Countrywide to file for certain bankruptcy.

Regardless of whether Countrywide is ultimately acquired, a lot of people have lost fortunes on Countrywide, and virtually everyone (save about 2 hedge funds that saw this housing collapse coming and shorted it) have been damaged by the housing collapse. It is time for someone to pay the price and there is nobody who has set himself up so perfectly as Angelo Mozilo.

For the time being, Angelo has stopped roaming the halls at Countrywide like a little raving idiot who owns the place. Rather, he is laying low (working on his tan) and avoiding the media hoping that he will be forgotten. He won't be. There are enough people who want to see him behind bars. Indictment coming.

The WSJ is reporting this morning that the Feds and several large mortgage lenders are close to an agreement that will freeze the introductory rate on certain types of subprime loans. I've long predicted this would happen and to be honest, I'm disappointed.

While I understand the pain the real estate market is causing for some, it's just not right to reward people who bought more house than they could afford. This program doesn't come free. It's subsidized by all of the borrowers who have done their homework, been responsible, and not gotten themselves into trouble.

This is also the hedge funds, private equity companies, and banks screaming for relief. They've created this mess through loose lending standards and by pumping obscene amounts of money into the mortgage market. We're all paying for that via inflated prices on our houses. They've made absolutely ridiculous amounts of money over the last 10 years and I hope they plan on absorbing the cost of this. There better not be a dollar of government money spent on this relief.

In our society we have reached the point where borrowing money no longer has any consequences. The only suckers here are the people who are trying to save their money while watching inflation and the falling dollar eat away at anything they've been able to sock away in the bank.

My advice to you. Stop being responsible. Go out and borrow as much money as you can. Rack up your credit cards. Because if you get into trouble, all of us responsible people out here will bail you out.

The 30-year fixed rate loan mortgage averaged 4.71% this week, the lowest level since Freddie Mac began its weekly survey in 1991 and down from 4.78% last week. A year ago, the 30-year mortgage was 5.53%.

The 15-year FRM this week averaged 4.27 percent with an average 0.6 point, down from last week when it averaged 4.29 percent. A year ago at this time, the 15-year FRM averaged 5.77 percent. The 15-year FRM has never been this low since Freddie Mac started tracking it in 1991, and breaks the record low set last week.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.19 percent this week, with an average 0.6 point, up slightly from last week when it averaged 4.18 percent. A year ago, the 5-year ARM averaged 5.77 percent.

The 1-year Treasury-indexed ARM averaged 4.25 percent this week with an average 0.6 point, down from last week when it averaged 4.35 percent. At this time last year, the 1-year ARM averaged 5.02 percent. The 1-year ARM has not been this low since the week ending June 30, 2005, when it averaged 4.24 percent.

"Interest rates for 30-year and 15-year fixed-rate mortgages fell for the fifth consecutive week to an all-time record low while the average rate on 5-year ARMs hovered near its record set in the previous week," said Frank Nothaft, Freddie Mac vice president and chief economist. "In addition, interest rates on 30-year and 15-year fixed mortgages thus far in 2009 averaged one percentage point below their respective average in 2008.

If you want to know what's fueling the mortgage market, look no further than these record-setting lows. I spoke to my loan officer and he said there has never been a better time to refinance.

• Compare mortgage rates and mortgage refinance rates.

At one point between the 20th and 30th minute of last night's vice presidential debate, Joe Biden was talking about the economic crisis. He ended his response by saying that the government should change not just the outstanding interest rate where a borrower had bought a home that they couldn't afford, but also should have the ability to change the outstanding principal of the loan (or the mortgage balance).

Now, I am entirely in favor of doing everything possible to keep people in their homes, but we are speaking about grown ups who knowingly and consciously entered into arrangements to purchase a home. It is a stretch to say that their financial illiteracy caused them not to understand the mortgage terms, but a much greater stretch to say that they did not understand that the price that they were paying was high.

Where is the accountability in our system? How does the government propose to compensate those who rented instead of purchasing? Or, those who purchased smaller homes and lived within our means during the housing bubble?

The Democrats are promising the world. They are making more promises, while they should be making fewer.

If we go in this direction, then I fully hope that Barack and Joe will indemnify me for all of the mistakes that I have made in my life. My software company failed after I sunk a fortune into it. I have gotten killed over the last year in all of my stock market investments. I spend a fortune on a divorce. My large SUV has devalued dramatically since I purchased it because gas prices have spiked up.

I am waiting for Barack and Joe to cut me a check to make me whole. :)

Mortgage rates spiked nearly a quarter of a percentage point this week on inflation fears, trouble with Fannie Mae and Freddie Mac, and overall bank weakness. The rate on a 30 year mortgage hit 6.63%, its highest level since 6.68% in August of 2007. On the face of it doesn't seem like rates have really risen much at all, but consider that the economy is weak and housing sales and prices are falling and anything that impacts affordability is a problem.

"Market concerns about rising inflation, further weakness in the housing market and greater probability that the Federal Reserve will raise short-term rates this year all combined to push mortgage rates higher this week," said Frank Nothaft, Freddie Mac chief economist."

Mortgage rates have risen even while the Fed has cut short term rates. That's because mortgage rates are being buffeted by:

• Inflation fears which are pushing up long term bond rates.
• The financial problems of Fannie Mae and Freddie Mac
• The end of bank off-balance sheet financing.

I don't know if foreigners are pulling out of long term Treasuries and I'll have to research this a bit more. But if they are then that would be an additional factor in the rise of longer-term rates.

Will long-term rates come down or stabilize? If the price of oil drops below $100 as some are predicting and the Feds take steps to restart Fannie and Freddie its possible rates may stabilize or even come down. But even at 6.63%, 30 year mortgage is still historically a very low rate. It's just not as low as we've been accustomed to.