Some housing bubble reports from Wall Street and Washington. "KB Home reported Thursday that first-quarter profit dropped 84% and cautioned that problems in subprime mortgages and imposition of stricter lending standards may put more stress on what's already a wobbly market. 'It is hard to predict when the housing markets will stabilize,' said Chief Executive Jeffrey Mezger."

"'Profit margins on our 2007 first-quarter deliveries were constricted due to the persistent imbalance in housing supply and demand that is fueling intense competition and pricing pressure among home builders and other participants in the new home and resale markets,' the CEO said in a statement. 'We believe these conditions will likely continue for at least the remainder of 2007,' he said."

"'Moreover, recent problems in the subprime mortgage market combined with tightening credit requirements could exacerbate the already-difficult conditions in the home-building industry,' the CEO said."

"'The rise in delinquency and foreclosure rates may increase the supply of homes on the market, generating additional downward pressure on prices,' he added."

From Bloomberg. "'Having now entered the spring selling season, we continue to observe instability in the marketplace,' Mezger said."

"Orders declined 12 percent to 7,677 because of weakness in Arizona and the central U.S., which the company defines as Colorado, Illinois, Indiana, Louisiana and Texas. The average selling price fell 5.4 percent to $261,400 a year earlier."

The LA Times. "As risky home loans soared in popularity in recent years, federal banking regulators were repeatedly warned that more borrowers were getting trapped in mortgages they could not afford. The Fed and other regulators issued stricter lending guidelines. But observers were stunned that the rules excluded adjustable-rate mortgages with low initial teaser rates."

"'Nobody was home," said housing policy expert Michael A. Stegman. 'None of the regulators were home.'"

"'It was very clear that the standards had deteriorated,' said David A. Lereah, chief economist of the National Assn. of Realtors. 'I'm not a lender though. I kept on saying to myself — I guess they know what they're doing.'"

"Two years ago, former New York Atty. Gen. Eliot Spitzer launched an investigation into mortgage lending practices. But instead of backing Spitzer's demand for lending records from three national banks, the Comptroller of the Currency filed suit seeking to block the probe."

"In October 2005, a federal judge forced Spitzer to drop his investigation. 'Spitzer was concerned about the consumers — and the federal regulators were concerned about the banks,' said John Taylor, president of the National Community Reinvestment Coalition, which took Spitzer's side in the case."

"'Abusive' lending and fraud helped fuel a surge in subprime mortgage defaults, the regulator of the biggest U.S. banks told senators probing federal agencies' response to trouble in the markets."

"Emory Rushton, the U.S. Office of the Comptroller of the Currency's senior deputy comptroller, told the Senate Banking Committee in Washington today that the OCC is working to correct lending standards that have slipped."

"'It is clear that some subprime lenders have engaged in abusive practices, and we share the committee's strong concerns about them,' Rushton said in prepared remarks. 'We are now confronting adverse conditions in the subprime mortgage market, including disturbing but not unpredictable increases in the rates of mortgage delinquencies and foreclosures.'"

From Reuters. "Sen. Christopher Dodd on Wednesday laid blame for the subprime mortgage market crisis at the feet of federal regulators. The chairman of the Senate Banking Committee said in a statement that 'a pattern of neglect by federal bank regulators ... precipitated the subprime mortgage crisis that could cause 2.2 million homeowners to lose their homes.'"

"Dodd said that in late 2003 and early 2004, the U.S. Federal Reserve's internal analysts noticed lending standards were slipping, raising default and foreclosure risks."

"At around the same time, he said, Fed leadership was encouraging the development of alternative mortgages, such as adjustable rate mortgages."

"'Soon thereafter, the Fed embarked on 17 consecutive interest rate increases, meaning that people with ARMs were now facing substantial payment shocks in the future,' he said."

The Associated Press. "Dodd said he wanted to know why it took the regulators more than three years to act 'despite evidence that they themselves identified problems in the subprime market.'"

From MarketWatch. "Roger Cole, the director of the Fed's banking supervision and regulation division, warned in congressional testimony that more borrowers may face problems. 'Some borrowers are clearly experiencing significant and personal challenges, and more subprime borrowers may join these ranks in the coming months,' Cole said."

"'Our nation's financial regulators were supposed to be the cops on the beat,' said Dodd.'Yet, they were spectators for far too long. The fact that the country's financial regulators could allow these loans to be made for years after warning flags appeared is...unconscionable.'"

"The chairman of the U.S. Senate Banking Committee said on Thursday that he plans legislation on predatory lending, but that the solution to the problem of Americans facing foreclosure on their mortgages may not be legislative."

"'The solution to this problem may not be legislative. Instead, I would seek to ask leaders from all the stakeholders ... to come together and try to work out an efficient process providing some relief for these homeowners who will be caught in this bind,' Sen. Christopher Dodd said."

"Congress should not bail out subprime lenders and brokers who made risky mortgage loans to borrowers with bad credit, but lawmakers can take several steps to protect consumers going forward, a representative of the Conference of State Bank Supervisors said on Thursday."

"'I strongly encourage Congress to avoid using taxpayer funds to bail out the subprime lenders, brokers and investors that generated our current problem,' Joseph Smith, the North Carolina Commissioner of Banks, said in remarks prepared for a Senate hearing."

"Some traders who predicted declines in shares of New Century Financial Corp., NovaStar Financial Inc. and Accredited Home Lenders Holding Co. say such stocks may fall further as loan delinquencies increase and demand for mortgage-backed securities wanes."

"'The subprime guys are history,' said Steven Persky, CEO of the $1.1 billion Los Angeles-based hedge fund Dalton Investments LLC, which began shorting shares of subprime lenders two years ago. 'They're ultimately going to have to file' for bankruptcy."

"'The lending standards had loosened to the point where virtually anybody could get a loan and the borrowers had little or no skin in the game,' said Brian Horey, general partner at Aurelian Partners LP in New York, which has shorted New Century, Accredited, and Fremont General Corp."

"'If you couldn't sell something, you wouldn't do it either,' UBS analyst David Liu in New York said. Part of the problem is falling demand for 'piggyback' home-equity loans used to make down payments, he said."

"Citigroup will no longer buy home-equity loans made to borrowers who won't prove their incomes and want more than 95 percent of their home's value, according to e-mails from salespeople."

"Countrywide Financial, the nation's top home lender, this month stopped making any loans with down payments of less than 5 percent when borrowers are 'stating' both income and assets."

"'People are adults and made choices in their lives because they wanted to own a home of their own,' Countrywide Financial CEO Angelo Mozilo said. 'America's great because people can make those decisions for themselves. The complaints about the loans only came when the opportunity for enrichment was gone' because home prices flattened out."