Some housing bubble news from Wall Street and Washington. "KPMG LLP sued former auditing client Fannie Mae, the biggest source of money for US home loans, for 'fraudulent deception' that prevented KPMG from uncovering $6.3 billion in overstated earnings. Fannie Mae from 1998 until 2004 withheld and distorted its accounting, engaging in 'breach of contract, fraudulent misrepresentation, fraudulent inducement' and other wrongdoing, New York-based KPMG said."

The Atlanta Journal Constitution. "The two biggest sources of mortgage money in the United States just stuck their fingers into a dike to hold back a flood of home foreclosures. The response of Freddie Mac and Fannie Mae to a crisis for subprime borrowers is welcome. It won't be enough to save the houses of every consumer who took out one of the enticing but risky loans."

"'We can't solve all the problems, but we can't wash our hands of them, either,' Daniel Mudd, the CEO of Fannie Mae, told the House Financial Services Committee last week."

"The unfortunate truth is that some families will lose their homes regardless of what the lenders or Freddie Mac and Fannie Mae do. There are 'borrowers who can be 'rescued' and those who cannot,' Freddie Mac CEO Richard Syron told the House committee."

From Briefing.com. "NVR Inc., one of the nation's largest homebuilding and mortgage banking companies, reported a 36% decline in first quarter earnings, due to lower revenue and continued pricing pressure in many of its markets."

"While NVR saw new orders climb during the latest quarter, offering hope for a housing rebound, it is attracting customers at a substantial cost. Profit margins were weighed down by lower prices and increased use of discounts and incentives. NVR, like other homebuilders, is likely to continue to feel the pinch of lower prices and higher costs in the coming year."

From USA Today. "About 15% of KB Home's already-built homes remain unsold; the firm's goal is 10%. Nationally, KB owns more than a three-year supply of undeveloped lots. And it saw an 84% drop in first-quarter earnings."

"In what he describes as a 'realistic,' not a 'gloomy,' outlook, CEO Jeff Mezger says he doesn't see the market improving much before next year. About 13% of loans for KB properties, many of them offered through a partnership with Countrywide Financial, were subprime in 2006, Mezger says."

"'In retrospect, (the high-end) markets were hit the hardest (in the current downturn),' he says. 'We've reverted to focus on first-time buyers and the first-time move-up buyer.'"

"Already, Mezger says, he's seen attitudes of buyers change in response to the new market conditions. 'People are now looking at homes as a residence, not buying and flipping,' Mezger says."

From Bloomberg. "Cemex SA, the world's third-largest cement producer, may report profit fell for the first time in three quarters as a slump in U.S. housing hurt sales."

"U.S. housing starts fell 31 percent during the first quarter from a year earlier. 'The biggest risk we see for Cemex is the slowdown in the U.S.,' analyst Luis Martinez said."

"Cemex's cement sales measured by tons probably dropped 19 percent, while ready-mix concrete sales probably fell 26 percent in the quarter because of reduced housing construction in Florida and California."

The Register Guard. "Three years after the U.S. housing boom reached its crescendo, mortgage rates remain at historically low levels. Northwest lumber and plywood manufacturers, which had to modernize their mills to keep up with demand during the building spree, are operating more efficiently than ever."

"The music of buzz saws and nail guns has quieted. And despite continuing favorable conditions, or maybe because of them, the wood products industry has become a dancer without a partner."

"'Right now, we're just going through an economic adjustment of overproduction (of houses) and underconsumption,' says Paul Ehinger, a Eugene-based wood products analyst with a long history in the industry. 'We've been there before, and we're there again.'"

"At least nine sawmills or plywood plants in the United States and Canada have closed or reduced shifts in recent months due to the nationwide construction slowdown, including five in Oregon."

"'Statewide and locally, we're looking at about a 10 percent decline,' says Brian Rooney, regional labor economist for the state Employment Department. 'Pretty much as soon as prices started dropping, in the last quarter of last year, employment started dropping, too. These are looking to be permanent layoffs at this point.'"

From Origination News. "Sovereign Bancorp Inc., Philadelphia, has reported that its mortgage banking business incurred a loss of $107 million in the first quarter, in large measure due to a $120 million charge related to the sale of correspondent home equity loans."

"Banking regulators may push more homeowners into foreclosure by making it tougher to refinance subprime mortgages, said Angelo Mozilo, head of the largest U.S. home-loan lender. The plan is an 'inadvertent attack on liquidity exactly when it shouldn't happen,' said Mozilo, CEO of Countrywide Financial Corp."

"Mozilo recommends that regulators exempt subprime borrowers replacing adjustable mortgages from the guidelines. 'These people bought houses under one set of rules and the rules have changed on them mid-stream,' he said. 'The simplest thing to do is to permit programs so we can refinance them.'"

"About 20 percent to 30 percent of people who took out subprime mortgages in 2005 and 2006 won't meet the financial thresholds regardless of whether the new guidelines are adopted because lenders aren't lending as much against property values, according to debt strategists at Lehman Brothers Holdings Inc."

"The main cause of delinquencies and defaults has been '`flippers, speculators and people knowingly stretching themselves without the capability to get past any bump in the road,' Mozilo said."

From MarketWatch. "Investment bank Goldman Sachs is increasingly concerned about the health of California's real estate market and reckons mortgage giant Countrywide Financial could be harder hit than other lenders because of its big exposure to the state."

"Mortgage delinquencies jumped 46% in California last year, vs. a 5% increase nationally, Goldman said. Delinquencies on prime and subprime adjustable-rate mortgages in California soared by 78% and 60% respectively, vs. 33% and 24% across the U.S., the bank added, citing recent data from the Mortgage Bankers Association."

"Now that lenders are cutting back some of these types of loans and regulators are beginning to crack down, California home prices could begin falling later this year, especially in high-price cities and towns, Goldman said."

"'Many metros in California have home prices that are not justified by the underlying fundamentals,' Goldman analysts James Fotheringham, Daniel Zimmerman and Monica Gabel, wrote. 'Instead house price trends have been driven by the availability of subprime and non-traditional credit.'"

"Ten of the top 12 metropolitan areas for subprime mortgages last year were in California, with Stockton topping the list. More than 40% of home loans in that town, nestled in the state's central valley east of San Francisco, were subprime in 2006, the analysts noted."

"With fewer subprime loans available and more delinquencies likely, California home prices will probably weaken further in 2007, the analysts said."

"Option ARMs are one of the few types of 'prime' home loans that have begun to deteriorate, Goldman said. About 46% of the principal from Countrywide's mortgage portfolio is from option ARMs, and many of these loans were probably originated in California, Goldman noted, adding that this is a 'risky combination.'"

National Mortgage News. "Merrill Lynch, in its first-quarter earnings statement, noted a 'difficult environment for the origination, securitization and trading of nonprime mortgage loans and securities in the U.S.' Merrill, of course, has been one of the toughest Street firms on loan buybacks."

"Meanwhile, we continue to hear buyback horror stories from funders that are getting raked over the coals by Wall Street. Here's the latest via a source: 'The loan was good for two years and then did not pay.' The source said the Street firm cited a $1,000 discrepancy on the verification of deposit as a reason for the buyback."

"In recent months National Mortgage News has published a handful of stories/columns about the growing secondary market for delinquent loans, including second liens. A few weeks ago the 'going price' for delinquent seconds was in the range of 15 to 25 cents on the dollar. One mortgage executive, a former trader, told us the going price is now four to five cents on the dollar which will not help subprime lenders that are saddled with bad seconds."