Some things to ponder this Monday morning

So the post-Fed rate cut euphoria has settled down, and now we're left to ponder whether things have fundamentally changed. Well, let's look at a few indications this Monday morning ...

* Credit default swap indices (which measure corporate bond default fears) have eased a couple of basis points this morning. The Japanese yen (a measure of risk appetite) has shed about 40 ticks against the dollar. And stock averages tacked on a few points this morning, before settling back down to roughly unchanged.

* At the same time, we're still getting plenty of bad headlines out of the mortgage sector. Thornburg Mortgage said it has dumped more than 35% of its assets, cut back on borrowings, and written down the value of its loan holdings. The Wall Street Journal is also reporting that industry leader Countrywide Financial is laying off workers.

* In the bigger picture, there's one common theme worth noting: Mortgage lenders are cutting back on origination activity in the non-conventional markets -- Subprime, Alt-A, jumbo, etc. They're trying to focus much more on conventional (Fannie Mae/Freddie Mac eligible) lending funded through regulated bank/thrift channels.

The problem is that homes in many markets are unaffordable under traditional, conventional lending guidelines. That didn't matter when you could lie about your income ... find a lender willing to fund 100% of your purchase price even if you were a first-time buyer ... or dedicate 50% or more of your monthly income to your home loan payment, etc. But if that kind of lending goes away, and we truly go back to a conventional-driven market, home prices will have to fall to reflect the reduced amount of "buying power" out there.