Paul Muolo has the latest on the mortgage business. "The phrase "mortgage REIT" has been synonymous with Friedman Billings Ramsey, the investment banking firm that has taken many of these non-prime mortgage lenders public (or has tried to). But now, thanks to a flat yield curve and declining production volumes, many mortgage REITs are suffering as are their shareholders. One joke making the rounds is that things are so bad for REITs right now that FBR's Eric Billings (the 'B' in FBR) may have to enter the witness protection program."

"On Monday the House Financial Services Committee held its hearing on the long awaited 'Rudman Report.' Sen. Warren Rudman (retired) told the committee that Fannie Mae officials 'manipulated' accounting rules so they could meet earnings goals (and maximize bonuses) in 1998. Most of the 20 or so elected officials attending the hearing seemed outraged by the behavior of (now former) Fannie executives."

"I've read about half the report and plan on working my way through it in the weeks ahead. From time to time I'll bring you some neat tidbits from it. Here's one: an allegation was made that Fannie tracked 20 to 25 employees at the company who 'can do political harm' to it. One employee is mentioned as being 'associated' with a 'prominent' politician. The allegation, though, was not substantiated."

And Bloomberg has this report on the sector. "The U.S. Federal Reserve's fight against inflation is taking a bite out of one of Wall Street's biggest money-makers: the $6.5 trillion market for packaging millions of home loans into tradable bonds."

"Executives at Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc. said revenue from mortgage bonds in the U.S. is dropping as rising interest rates depress home sales. Lehman, the fourth-biggest U.S. securities firm, is cutting almost 200 jobs at two home-lending units in California. Bear Stearns Cos. Chief Financial Officer Sam Molinaro said that he sees 'weakness' for new mortgages across the industry."

"Since June, home sales fell 10 percent. The drop in sales cut the supply of home loans, which securities firms use to make the bonds, by 65 percent from the 2003 peaks. Average U.S. home prices are stagnating after rising for five straight years. They declined 3 percent to $261,000 in January from an all-time high of $269,000 in August."

"'We expect home sales to drop by 8 percent in 2006,' because investor demand is falling and homes are too expensive for some first-time home buyers, said Daniel Mudd, CEO of Fannie Mae, the largest U.S. provider of mortgage financing. 'There are clear downward trends that have emerged.'"

"'We are coming into a challenging part of the cycle,' said Kevin White, who helps oversee New York-based Lehman's mortgage-bond group. 'That's good for us in the long run because 10 of our competitors will have closed up shop.'"

"Wall Street firms also are facing increased competition from Fannie Mae and Freddie Mac, the nation's two biggest providers of mortgage financing, which plan to increase their buying and packaging of home loans that don't conform to insurability standards. Those include loans to people with low credit scores and mortgages to borrowers with good credit but with little documentation of their income."

"One of (Lehmans) units, Aurora Loan Services LLC, filed a notice in January with California's Employment Development Department saying it plans to close an office in Irvine, California, with 92 employees. Another subsidiary, BNC Mortgage Inc., also based in Irvine, filed separate notices that it's dismissing 95 employees."