The Wall Street Journal is reporting today that Countrywide is beginning to reduce staffing in an effort to weather what now appears to be an extended downturn in the mortgage credit market:

The layoffs occurred in the company’s Full Spectrum Lending unit, which handles many home mortgages in a category known as Alt-A, or mortgages between prime and subprime that often involve borrowers who don’t document their income … The email, sent to employees Friday by a senior official of Full Spectrum, discussed layoffs made that day but didn’t specify the number.

The same story also provides anecdotal evidence of the current market state:

An auction of about 135 foreclosed homes in San Diego Saturday provided more sobering news for mortgage lenders. Ramsey Su, an investor and former real-estate broker who attended, calculated that the high bids for the homes averaged 67% of the prices they fetched when they were last sold, mostly in 2004 or 2005. At a similar auction in San Diego in May, the average was 73%. The auction was held by Real Estate Disposition Corp., Irvine, Calif., which promotes such sales on the www.usahomeauction.com Web site. REDC officials couldn’t be reached to comment.

That would equate to a 25-30 percent drop in real home prices in the San Diego area, and would suggest that even mortgages at 80 percent LTV may put a lender into tough position with regards to loan modifications right now.