Some housing bubble news from Wall Street, Washington and Business Week. "BusinessWeek has learned that federal investigators have opened a broad criminal probe into lending practices, some financial transactions, and other dealings at Beazer Homes USA. The North Carolina field offices of the Federal Bureau of Investigation, the Internal Revenue Service, and the Justice Dept. have recently opened a joint investigation into the company over such matters."

"Investigators, however, are not limiting their probe to possible mortgage fraud. 'There's all sorts of potential fraud issues here,' FBI spokesman Ken Lucas told BusinessWeek. 'We're looking at all types of [potential] fraud associated with Beazer—corporate, mortgage, investments.'"

From MarketWatch. "'Beazer Homes has been in contact with the U.S. Attorney's Office and, at this time, there have been no allegations of any wrongdoing,' the company said in a press release."

"Several major home builders also operate finance companies to aid customers in buying their houses. Those businesses and the broader home-lending industry have been under scrutiny lately as defaults among the riskiest of those loans, called subprime, have spiked."

The Associated Press. "The Charlotte Observer reported last week that the company had an unusually high rate of foreclosures in many developments around North Carolina's largest city. The paper reported that of the 2,900 Beazer homes built in Mecklenburg County between 1997 and 2006, at least 388 have foreclosed - a rate above 13 percent."

"Nationally, fewer than 3 percent of buyers lose homes to foreclosure, the paper said. In its series, The Observer documented four examples where the income and debts of borrowers were misstated on their applications for government-insured loans."

The New York Times. "New Century Financial, the troubled subprime mortgage company, could file for bankruptcy protection as early as the end of this week, people briefed on the company’s plans said yesterday."

"In the last week, banks that provided it with credit lines totaling $17.4 billion started repossessing or selling the collateral that backs those debts. Barclays Capital, for instance, has taken ownership of mortgages with a face value of $900 million. Morgan Stanley, which lent the company $265 million this month, is auctioning $2.48 billion worth of loans this week, and Natixis Real Estate Capital is auctioning $800 million in loans."

"'The one reason they haven’t filed for bankruptcy yet is that they believe they can still pull off a transaction with someone coming in and acquiring them,' said Jeffrey K. Garfinkle, a partner with a law firm in Irvine, Calif., that has represented the company in the past but no longer does so. 'But it is really late in the game.'"

"The Securities and Exchange Commission and the United States attorney’s office in Santa Ana, Calif., are investigating trading in the company’s shares and accounting errors."

"Furthermore, regulators in several states including California, New York and Ohio have restricted the company from making new mortgages because it was unable to fund loans after closing. Those sanctions will limit the number of potential bidders for the company’s assets."

From Reuters. "New Century's franchise value has largely been destroyed, and the subprime lender has gone too far down the bankruptcy path to reverse course, according to a Merrill Lynch & Co. analyst."

"Kenneth Bruce said potential acquirers of all or part of New Century are likely to be scared away as the Irvine, California-based lender's loans get sold and amid a flurry of regulatory and legal actions."

"'The business is broken,' Bruce wrote. 'New Century has gone too far down the path of bankruptcy to reverse course. The value of its franchise was largely destroyed, once it failed to close loans in its pipeline.'"

"Washington Mutual Inc.'s subprime bonds are suffering from some of the worst rates of delinquency among securities in benchmark indexes, according to JPMorgan Chase & Co. research."

"Delinquencies of 60 days or more on loans supporting WaMu's Long Beach Mortgage LBMLT 2006-1 issue jumped 1.78 percentage points according to monthly reports published this week, to 19.44 percent, JPMorgan data shows."

From Bloomberg. "GMAC LLC said losses at its Residential Capital home mortgage division, which lends to borrowers with weak credit, will hurt profit this year as defaults and foreclosures surge."

"GMAC is making changes at the mortgage unit, also known as ResCap, to limit losses, the company said in a slide presentation included in a Securities and Exchange Commission filing today. GMAC said it's 'sharply' cutting non-prime mortgage lending and expanding efforts to cut losses from bad loans."

"The ResCap unit posted a fourth-quarter operating loss of $651 million, compared with profit of $118 million a year earlier, GMAC said March 13. ResCap made $6.9 billion of 'nonprime' loans in the fourth quarter, a 43 percent decline from the same period in 2005."

The Philadelphia Inquirer. "Fulton Financial Corp. said it might have to buy back from an investor up to $22 million in risky home mortgages that went bad during the first three months of scheduled payments."

"Most of the problem loans, made by a Virginia subsidiary of Fulton, were so-called 80/20 mortgages. Such loans exploded in popularity during the real estate boom, but they left some borrowers owing more than their houses were worth when the real estate market slowed."

"The high failure rate of 80/20 loans, which require no independent verification of the borrower's income, is a significant factor in the turmoil nationally in the subprime mortgage market."

"Subprime mortgage backed securities from 2006 may be the 'worst-performing in recent history,' with delinquencies on the underlying debt 'consistently higher' than in the prior five years, Standard & Poor's said."

"About 13 percent of mortgages made last year to people who have poor or bad credit are delinquent, S&P analysts Michael Stock and Scott Mason said in a report yesterday, with 6.65 percent of the total classified as 'seriously delinquent,' or more than 90 days late."

"'It was the layering of risk,' Stock said. 'There is no equity in the home, no income verification and a first-time homebuyer.'"

"In almost 29 percent of subprime mortgages, a second loan was taken out simultaneously, meaning that homeowners were 'in laymen's terms, borrowing their down payment,' Stock said."

"Almost eight out of 10 borrowers in 2006 had low- documentation loans where lenders didn't require proof of the borrowers' income, S&P said in the report."

"About $540 billion of bonds backed by subprime mortgages made in 2006 are outstanding, making up more than a third of all securities derived from such loans, according to Bear Stearns Cos. the biggest U.S. underwriter of mortgage bonds."

"Collateralized debt obligations, known as CDOs, helped fuel the recent housing craze by purchasing some of the riskier parts of the MBS market that other investors avoided."

"But now that the housing market is slowing, analysts are scrambling to figure out if the value of CDOs is going to be badly dented by their exposure to the subprime market."

"Many CDOs will be protected against excessive subprime exposure by the fact that their bond pools typically contain instruments other than subprime residential MBS, according to Moodys analyst John Park."

"Other common holdings in CDO portfolios are prime residential MBS, commercial MBS, auto loan securities, credit card securities and real estate investment trust instruments. However, in recent weeks traders have wondered whether the subprime MBS meltdown will spread to securities based on auto and credit card loans issued to borrowers with below-average credit profiles. If so, CDOs may not enjoy as much protection from diversification."

"New York Fed President Timothy Geithner said last week that, even the more sophisticated participants in the markets 'find the risk management challenges associated with these instruments daunting. This raises the prospect of unanticipated losses.'"

The Financial Times. "US authorities stepped up investigations on Tuesday into possible fraud by companies in the high-risk mortgage market. The Securities and Exchange Commission told Congress it had set up an enforcement unit to probe possible fraud involving subprime mortgage lenders."

"'To the extent that these loans are securitised and to the extent that they become part of problems, fraud or accounting problems related to that, we want to be there as enforcers,' said Christopher Cox, chairman of the SEC."