Some housing bubble news from Wall Street and Washington. "Concerns about inflation trumped worries about the slumping housing market last month in the minds of Federal Reserve officials who voted to hold interest rates steady. While Fed officials said the downturn in housing was turning out to be more severe than expected, worries about inflation continued to dominate the May 9 discussions among Fed Chairman Ben Bernanke and his colleagues, according to minutes released Wednesday."

"'Nearly all participants viewed core inflation as remaining uncomfortably high and stressed the importance of further moderation,' the minutes said."

From Bloomberg. "'The correction of the housing sector was likely to continue to weigh heavily on economic activity through most of this year, somewhat longer than previously expected,' the minutes said."

"Almost all Fed policy makers consider inflation to be 'uncomfortably high,' the minutes added. 'All participants agreed that the risks around the anticipated moderation in inflation were to the upside; and some noted that a failure of inflation to moderate could entail significant costs.'"

From Forbes. "'Recent readings on sales and inventories of new homes had been interpreted by the staff as suggesting that the ongoing contraction in residential investment would continue for longer than previously expected,' the minutes said."

"The general sentiment was mirrored in Federal Chairman's Ben Bernanke's May 17 address, when he said that increased deliquencies and foreclosures would continue to weigh on the market 'this year and next.'"

From Fitch Ratings. "Fitch Ratings has revised M/I Homes's (MHO) Rating Outlook to Negative from Stable."

"The Outlook revision to Negative for MHO reflects the more challenging outlook for homebuilders, the current and expected near term deterioration in certain credit metrics for the company, and pressures from credit tightening, which particularly affect the entry level buyer (a targeted customer at M/I Homes), and high cancellation rates, which add to speculative inventory totals."

"The housing sector is in the midst of a meaningful, multi-year downturn. MHO has been increasing its sales and marketing efforts, focusing on reducing speculative inventory (enlarged by unusually high cancellation rates), reducing its lot supply, reassessing its land positions, renegotiating option contracts and, where possible, reducing overhead and direct construction costs."

"During this current downturn MHO, like most builders, has leveraged the financial flexibility of land options, walking away from overpriced lots (forfeiting its deposits). These builders also have reported meaningful charges associated with write downs of land values."

"MHO was the 21st largest U.S. single-family homebuilder in 2006 as ranked by Builder Magazine."

The Post Dispatch from Missouri. "Bill Taylor appears to be back in the trenches, battling the nationwide slump in new house sales that's also affecting local builders."

"The CEO of 53-year-old Taylor-Morley Homes has sold the equity in his headquarters building, and has scaled back his company's share to 10,000 square feet from 20,000."

"'We have had to let some people go, but so have most builders,' said company spokeswoman Judi Wayhart. 'But, he (Taylor) says it was much worse in the '80s. This is a 53-year-old company, and he's (Taylor) been through this four times.'"

"'We don't know what has made the new house buyer go into his cocoon, because the interest rate is not that bad,' said Pat Sullivan, executive VP of the Home Builders Association of St. Louis & Eastern Missouri. 'It's puzzling. They don't usually go into the cocoon until the interest rate reaches about 8 percent.'"

"'One thing is for sure, when the market slows you don't want to be holding too much land,' Sullivan said."

From CNN Money. "Imagine you're a homeowner, and you discover that instead of the expensive subprime mortgage loan you signed on for, you actually qualified for a prime mortgage with much lower interest rates."

"'I reviewed several hundred [subprime] loans recently for our wholesale division,' said Allen Hardester, regional director of development for mortgage-broker, Guaranteed Rate, 'and all of them, with one exception, qualified for a prime-rate loan.'"

"Some consumer advocates blame loan officers and mortgage brokers who steer borrowers away from prime loans because they can make much more money from the subprime market. 'I have a friend who interviewed for a job with my company,' said Hardester. 'He told me, 'I'm not coming to work for you. I can't make enough money.'"

From Reuters. "Fitch Ratings on Wednesday cut the residential primary servicer rating for subprime mortgages of NovaStar Mortgage, Inc., a unit of NovaStar Financial Inc., citing uncertainties over the company's profitability."

From NPR.org. "Ameriquest was a high-flying sub-prime lender during the housing boom, and was accused of predatory lending by state prosecutors. The company now faces a class-action lawsuit from borrowers."

"Some of the creative ARM products that flourished of late included interest-only and payment-option loans. How prevalent were these loans? Nearly 23 percent of all mortgages taken out in 2005 were interest-only ARMs, and more than 8 percent were payment-option ARMs, according to First American LoanPerformance."

"In certain once-sizzling markets, the numbers were much higher: For example, 34 percent of all new mortgages in California in 2005 were interest-only."

The Boston Herald. "A Rhode Island lawyer claims he has found a chink in the legal armor of subprime mortgage giant Ameriquest, one that could give hundreds of thousands of homeowners grounds to wriggle out of their loans."

"Attorney Christopher Lefebvre said he is representing 200 current and former Ameriquest homeowners in Massachusetts and other states, many now facing foreclosure - who are suing to undo mortgages taken out through the California-based lender."

"The homeowners he is representing contend they were either not given all the correct mortgage paperwork, or that it was provided in a confusing or misleading way."

"Lefebrve contends paperwork problems were common during the recent hectic boom in subprime mortgages. 'People got sloppy,' he said."

"Federal bankruptcy regulators Friday urged a bankruptcy judge to expand the scope of a probe of New Century Financial Corp., the Irvine-based subprime lender that failed earlier this year."

"The U.S. Trustee wants the examiner to have the power to examine New Century's accounting for 2005 in addition to records from 2006, which were already on the agenda because the company admitted accounting irregularities would require the restatement of reported financial results for that year."

"HSBC Holdings Plc plans to sell bonds backed by some of the last subprime mortgages made by bankrupt New Century Financial Corp., once its biggest rival in the business."

"More mortgages that New Century made in its last months before filing for bankruptcy on April 2 will probably turn up in future deals, said Alla Sirotic, a Fitch analyst in New York. HSBC's bank will be on the hook for repurchases of any loans with defects that normally would have required an originator to buy them back, Fitch's Sirotic said."

"'Where typically in the past we've accepted New Century's' loan warranties 'we're no longer accepting those,' she said."

"The numbers looked compelling. Buy this investment-grade collateralized debt obligation and you'll get a return of up to 10 percent, Credit Suisse Group said."

"Investors snapped up the $340.7 million CDO, a collection of securities backed by bonds, mortgages and other loans, within days of the Dec. 12, 2000, offering. The CDO buyers had assurances of its quality from the three leading credit rating companies, Standard & Poor's, Moody's Investors Service and Fitch Group Inc. Each had blessed most of the CDO with the highest rating, AAA or Aaa."

"Investment-grade ratings on 95 percent of the securities in the CDO gave no hint of what was in the debt package, or that it might collapse. It was loaded with risky debt, from junk bonds to subprime home loans. During the next six years, the CDO plummeted as defaults mounted in its underlying securities. By the end of 2006, losses totaled about $125 million."

"The failed Credit Suisse CDO may be an omen of far worse to come in the booming market for these investments. Sales of CDOs worldwide have soared since 2004, reaching $503 billion last year, a fivefold increase in three years, according to data compiled by Morgan Stanley."

"Many of the world's CDOs are owned by banks and insurance companies, and the people who regulate those firms rely on the raters to police the CDOs."

"'As regulators, we just have to trust that rating agencies are going to monitor CDOs and find the subprime,' says Kevin Fry, chairman of the Invested Asset Working Group of the U.S. National Association of Insurance Commissioners. 'We can't get there. We don't have the resources to get our arms around it.'"

"Joseph Mason, a finance professor at Philadelphia's Drexel University and a former economist at the U.S. Treasury Department, says the ratings are undermined by the disclaimers. 'I laugh about Moody's and S&P disclaimers,' he says. 'The ratings giveth and the disclaimer takes it away. Once you're through with the disclaimers, you're left with very little new information.'"

From Nine MSN. "A weakening US housing market is dragging down the world economy, with growth in world gross product, or WGP, expected to fall to 3.4 per cent in 2007 from four per cent last year, the United Nations says."

"'Currently, the primary drag for the world economy is a notable slowdown in the United States of America, as its housing sector is falling into a substantial recession and business investment is weakening,' the UN report said."