Paul Muolo kicks off a look at housing bubble news from Washington and Wall Street. "In a brief interview with National Mortgage News last week, Countrywide CEO Angelo Mozilo predicted that the industry's correction will last at least another two years. He believes that significant consolidation is now underway. Another executive told us that 'we're about one-third of our way through this mess.' Profit margins continue to be tight in both the prime and subprime sectors."

"When the going gets tough the tough start exercising their stock options. Fannie Mae directors Ann McLaughlin Korologos and Joe Pickett in early May each exercised stock options valued at $126,250."

"Both are current board members and served under former chairman Franklin Raines. Mr. Raines, Mr. Pickett and Ms. Korologos, and other executives and directors (past and present), are defendants in a shareholder lawsuit that accuses them of turning a blind eye to the company's accounting woes because they were involved in 'mutually beneficial relationships' with the GSE. The plaintiffs charge the group did not operate as independent directors. Fannie Mae is trying to get the lawsuit dismissed."

"The Enron convictions were big news this past week and mortgage executives are starting to wonder if criminal charges might be brought in the Fannie Mae case. The Office of Federal Housing Enterprise Oversight and Securities and Exchange Commission formally accused the company and its former top executives of fraud."

"Of primary interest to criminal investigators are the 1998 bonus payments. One industry veteran who has worked on fraud cases told us that breaking the rules to make money is a 'criminal act' and adding that 'people go to prison for that.' (Millions of dollars in bonuses were paid that year.) The obvious question in the Fannie case is who was responsible for bending the accounting rules and what did they do, and when."

Bill Fleckenstein writes about the next big scandal. "'Make money risk-free!' That's usually a costly come-on, as ordinary folks know. But corporate chieftains who sit on their stash of stock options have found a way to turn this unattainable fantasy into reality. The public..outrage will only intensify when folks who've speculated in the housing market start to feel the real pain, which will bring about the next big scandal: fraudulent appraisals and bogus financing schemes."

And the NAR has their latest sales tactic out. "Apartment rents are expected to increase 5.3% this year - about double last year's increase, the National Association of Realtors says."

"When the housing market was at its blazing peak, many investors who owned apartment buildings kicked out tenants and sold the units as condos. One out of three apartment buildings sold last year were converted into condos for sale. That took 191,400 apartments off the market, according to the NAR. In addition, the number of new apartment buildings under construction is down this year."

Inman is going along. "As the housing market cools down in many areas, rental housing is heating up, with rents rising and the amount of available rental housing dropping, experts say."

"There are two reasons rents have gone up so much in Southern California, Conway said, one of which is interest rates. 'First of all, now that the housing market is cooling and interest rates are moving up, more people are choosing to live in apartments,' Delores Conway, director of the Casden Real Estate Economics Forecast said."

"'Demand for apartments has gone up as the adjustable mortgage rates everyone was using to try to qualify for mortgage loans are going up. Now lenders are tightening qualifying criteria as well and adjustable-rate mortgages are moving up. They are almost up with fixed-rate loans,' the director said."

"Hence, there is more demand for apartments now, Conway said. 'The second thing is more interesting. Because the housing market has been white-hot and there have been so many condo conversions, the supply of apartments actually went down and the demand went up,' Conway said."