Some housing bubble news from Wall Street and Washington. "Fannie Mae, which finances one of every five home loans in the United States, reported it...expects to report lower earnings for 2006. The government-sponsored company is remaking itself as it recovers from a multibillion-dollar accounting scandal."

"Fannie Mae said that it expects 2006 profit to show a decline, mainly due to reductions in interest income and ballooning costs from the restatement process. The company said that going forward, it expects its credit losses 'will increase and serious (mortgage) delinquencies may trend upward' as a result of the slumping housing market."

The Associated Press. "Some on the brink of losing their homes will benefit from the foreclosure delays advocated by Massachusetts Gov. Deval Patrick, but many are so financially troubled that a delay won't make a difference, the state's top lenders association said Tuesday."

"By the time many cases reach the foreclosure stage, it's often too late, 'whether we wait 60 days or not,' said said Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association."

"John Battaglia of The Cambridge Mortgage Group, said he applauded Patrick's efforts, but said it will be a daunting task for the state to determine which complaints have merit and which are just trying to take advantage of the extra time. The state has no power to force lenders to negotiate new terms."

The Orange County Register. "It has been two weeks since H&R Block announced the planned sale of its subprime unit Option One Mortgage Corp. Well, the tax preparer already has hit a little snag, though nothing that will derail the deal at this point. The company said in a filing today that its mortgage unit lost a $1.5 billion credit line from Merrill Lynch & Co."

"Other investment banks reduced or rearranged their financial backing. For example, UBS cut its credit line from 1.5 billion to $750 million."

The Columbian. "Mortgage loan broker Millennium Funding Group stopped operations this week after laying off most of its Vancouver staff due to continued erosion in the subprime lending market."

"'The market in general doesn't support operations at this time,' said Joe Bell, VP of human resources for Ace Holding Co. LLC, Millennium's owner. He said subprime lending represented about 60 percent of Millennium's business."

The Star Telegram. "Moody's Investors Service, a credit-rating agency, reported recently that more than half the large home builders had negative cash flow at the end of calendar 2006. 'A growing number of builders are at risk of failing to comply with their lender covenants, underscoring 'a potentially serious problem,' Moody's said."

"Since last summer, Moody's has taken 15 ratings actions against home builders, all of them negative. More problems are expected."

"'Now, as the spring selling season shows signs of being a bust and a stunning surge in mortgage credit problems is roiling the nation's mortgage market, 2007 looks to be a complete wash out,' wrote Joseph Snider of Moody's, 'while 2008 is probably the earliest that some stabilization will begin to occur.'"

"This cycle is different, because 18 months into the downturn, many companies still have negative cash flow, Moody's said. And that cuts into their capacity to handle debt payments."

"Last month, at a conference at the American Bankruptcy Institute in Washington, lawyers warned that some large builders may be headed toward trouble, because they issued so much debt in the boom times."

"The problem is that it's taking much longer to sell finished, vacant homes. At DR Horton, that's largely because cancellation rates are still running double their historical average. CEO Don Tomnitz doesn't see that changing soon, even though Horton is building fewer homes and cutting sales prices."

"'We're still faced with a liquidity crisis in the mortgage industry, and I think that's going to get worse over the next two to three quarters,' Tomnitz said, referring to tighter loan standards."

From BYM News. "'Florida markets continue to work through the down side of the real estate cycle and residential inventories remain high in our markets,' said St. Joe Company CEO Peter S. Rummell."

"'We are selling a limited number of resort and primary residential units. High inventories remain an issue and sales activity is slow and sporadic. We knew heading into 2007 that this would be a difficult year in Florida’s residential real estate markets – and it is proving to be just that. We don’t expect to see our markets returning to health until 2008,' Rummell said."

"Yesterday, JOE announced that it has agreed to sell its mid-Atlantic homebuilding operations, primarily operating under the name Saussy Burbank. The transaction is expected to generate no gain or loss beyond an impairment loss of $2.2 million recorded in the first quarter 2007."

From CNN Money. "John Devaney's not a developer, and he's certainly not a flipper. The CEO of United Capital Markets is a bond trader. And one of his specialties is buying and selling bonds that are backed by the mortgage payments of ordinary homeowners."

"Option ARMs? Devaney loves 'em. 'The consumer has to be an idiot to take on those loans,' he says. 'But it has been one of our best-performing investments.'"

"Wall Street's rocket scientists keep finding more sophisticated ways to repackage and resell mortgages. Now a lot of that lending looks foolish. Mortgage delinquencies among so-called subprime borrowers have risen to 13 percent, the highest in at least 10 years."

"What comes next? The pullback. Investors will be more selective about where they put their money, and banks will be more cautious in their lending. But the risk is that this will happen so fast that we'll see a vicious circle develop."

"With option ARMs, borrowers tend to focus on the introductory rate and minimum payment, and to ignore the higher rate down the road. For the broker, that higher rate could mean the difference between a $3,000 commission and one several times as large."

"'Option ARMs are not a license to steal, but once a customer asks for it, I know I'm going to make four times as much,' says Jim Moore, a Grand Rapids broker. 'It's what puts me down here at Best Buy buying a 40-inch flat screen.'"