Some housing bubble news from Wall Street and Washington. "Sales of new one-family houses in December 2006 were at a seasonally adjusted annual rate of 1,120,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 11.0 percent (±11.7%)* below the December 2005 estimate of 1,259,000."

"The seasonally adjusted estimate of new houses for sale at the end of December was 537,000. An estimated 1,061,000 new homes were sold in 2006. This is 17.3 percent (±3.4%) below the 2005 figure of 1,283,000."

"Last year's plunge in new home sales was the biggest drop since a 17.8 percent drop since the recession year of 1990. Sales of existing homes fell by 8.4 percent to an annual rate of 6.48 million units, it was reported Thursday. That was the biggest decline in the sale of previously owned homes since 1989."

From Reuters. "Home builder M.D.C. Holdings on Thursday posted a fourth-quarter loss after charges for asset impairments and project cost write-offs, and said new home orders fell during the quarter. It said after-tax charges in the fourth quarter for asset impairments and project cost write-offs were $56.5 million and $4.1 million respectively."

"It said its new home orders reflect a slowdown in the housing market, with 1,571 orders for new homes in the 2006 fourth quarter, with an estimated value of $515 million, compared with 2,405 homes with an aggregate value of $831 million a year ago."

"Mandalay Mortgage, Woodland Hills, Calif., a top-30-ranked subprime wholesale originator, is closing its doors at the end of the month and will stop funding loans, sources familiar with the situation have told."

"Millennium Bankshares will wind down its mortgage banking business to focus solely on core banking services, the company announced Thursday. The Reston-based bank has seven branches in Virginia, including five in Northern Virginia."

"'We were concerned about future volatility in earnings as a result of the soft housing market and wanted to eliminate, going forward, the risks normally associated with mortgage banking activities,' says Carroll Markley, Millennium's CEO, in a statement."

"IndyMac Bancorp Inc., a big Southern California mortgage specialist, on Thursday said fierce competition and worsening credit quality may push 2007 profit well below analysts' forecasts. The Pasadena-based parent of IndyMac Bank also said it has frozen all salaries, stopped hiring non-revenue-generating personnel, (and) plans to outsource 50 percent more jobs by year end."

"'People have been predicting disaster in the housing market, and for much of our competition, it is,' CEO Michael Perry said."

"The problems affect many lenders in California, which was a big driver of this decade's housing boom, and which analysts say has many overstretched borrowers. About 45 percent of IndyMac's mortgage lending is in the state, Perry said."

"Lower borrowing demand 'is creating fierce competition and affecting margins,' Perry said. 'You have excess capacity; a severely inverted yield curve; slowing housing prices, starts and sales; and credit losses returning to more normal levels.'"

"Loan losses rose to $9 million from $5 million in the third quarter. 'We expect (loan loss) provisions will likewise be elevated in 2007,' wrote Lehman Brothers Inc. analyst Bruce Harting."

"IndyMac said 71 percent of its fourth-quarter mortgage loans were interest-only or adjustable-rate."

The Indianapolis Star. "A California lender has filed a lawsuit against HMS Title Services of Greenwood and Affordable Lending of Terre Haute, contending their negligence forced it to foreclose on six Westfield and Indianapolis houses."

"At least three of IndyMac's Westfield loans appear to trace to Tamara E. Penn, who also is at the center of a federal grand jury inquiry into a massive real estate deal that failed on the Eastside. It pushed an entire neighborhood in the Windsor Village area off 21st Street into foreclosure last year."

"The failed deal also led California lender Countrywide Bank to file a federal lawsuit in Indianapolis in June, contending it was a victim of a real estate conspiracy."

The New York Times. "Wall Street’s big bet on risky mortgages may be souring a lot faster than had been previously thought. The once booming market for home loans known as subprime mortgages, is coming under greater pressure. The evidence can be seen in rising default rates, increasingly strained finances at mortgage lenders and growing doubts among investors."

"Wall Street firms, which had helped fuel the growth in the market by bankrolling and investing in subprime mortgage lenders, have begun to pinch off the money spigot."

"'Pick a company — small, medium or large — they all have the same problem: capital,' said Marc A. Geredes, who runs a small mortgage company in San Jose, Calif. 'The economics of the business do not make sense right now.'"

"In one indication that investors are losing their taste for mortgages, hedge funds that specialize in mortgage-backed securities had an outflow of $1.8 billion in 2006, down from an inflow of $1.8 billion in 2005, according to Hedge Fund Research. It was the only category of hedge funds to have a negative flow for the year."

"'The pendulum swung too far the other way,' said Guy D. Cecala, president of Inside Mortgage Finance, which publishes data and newsletters on the industry. 'At some point, it comes back. But what it usually takes is a little blood on the road.'"

"If that is indeed how the story will play out, William D. Dallas, the founder and CEO of recent bankrupt Ownit, a lender based in Agoura Hills, Calif., would argue that his company has become an early case of road kill."

"Mr. Dallas acknowledged that Ownit, like other subprime lenders, saw a sharp increase in defaults from new borrowers in 2006, compared with 2005 and 2004 — years when few loans showed early losses. But he said the defaults were still low at 2 percent and insisted that most of those borrowers had simply missed one or two payments because they were confused about where to mail payments, because many of them had two mortgages on their homes."

"Mr. Dallas acknowledges that standards were lowered, but he placed the blame at the feet of investors and Wall Street, saying they encouraged Ownit and other subprime lenders to make riskier loans to keep the pipeline of mortgage securities well supplied."

"'The market is paying me to do a no-income-verification loan more than it is paying me to do the full documentation loans,' he said. 'What would you do?'"