Some housing bubble news from Wall Street and Washington. "U.S. foreclosure filings surged 90 percent in May from a year earlier as more homeowners fell behind on their monthly mortgage payments, RealtyTrac Inc. said. There were 176,137 notices of default, scheduled auctions and bank repossessions last month, led by California, Florida and Ohio."

"A jump in foreclosures at a time of year that traditionally is the busiest for home sales means the slide in prices probably isn't over, said James Saccacio, CEO of RealtyTrac. 'Such strong activity in the midst of the typical spring buying season could foreshadow even higher foreclosure levels later in the year,' Saccacio said in the report. That will add 'to the downward pressure on home prices in many areas.'"

From Bloomberg. "Federal Reserve Governor Randall Kroszner said the central bank 'will seriously consider' tougher rules to prevent abuses in consumer credit, including whether it should ban some mortgage lending practices."

"Kroszner's comments show the Fed is now balancing its previous preference for unenforceable guidance and improved disclosure with the threat of new rules, which would give consumers the power to litigate against abuses."

"'Any rule should be drawn sharply with bright lines to avoid creating legal and regulatory uncertainty, which could have the unintended effect of substantially reducing consumers' access to legitimate credit options,' Kroszner said."

"Still, his remarks are the most conciliatory to date toward congressional demands that the Fed toughen up restrictions."

"'The board is keenly aware, however, that disclosures and financial education may not always be sufficient to combat abusive practices,' Kroszner said. 'The board also has the responsibility to prohibit other practices by issuing rules.'"

From MarketWatch. "Prompted in part by troubles in the subprime mortgage market, banking regulators on Wednesday called for greater powers to fight unfair and deceptive lending practices and said they'd consider prohibiting some practices."

"Sheila Bair, the chairman of the Federal Deposit Insurance Corp., called for a national standard for subprime mortgage lending."

"The House Financial Services Committee is exploring improved consumer protection in financial services. The hearing comes a day before the Fed is to hold a hearing about how to curb abusive lending practices in the subprime market."

From Marketplace. "The nation's foreclosure problems may only be getting worse. RealtyTrac says there were 176,000 new foreclosure filings nationwide in May."

"Thomas Lawler is an independent housing economist. Thomas Lawler: 'What the foreclosure numbers are suggesting is that many of those delinquencies are entering what you might call phase two. A lot of lenders are feeling that these loans are not easily salvageable.'"

From Business Week. "Investors in a 10-month-old Bear Stearns (BSC) hedge fund are learning the hard way the danger of investing in risky bonds with borrowed money. The investment firm's High-Grade Structured Credit Strategies Enhanced Leverage Fund, as of Apr. 30, was down a whopping 23% for the year."

"The situation is so bleak that Bear Stearns' asset management group is suspending redemptions at the onetime $642 million fund—meaning investors have no choice but to sit on their losses. And that's got some hopping mad."

"'At the end of the day, I'd like someone to be honest with me about what's going on,' says one investor in the hedge fund, which bet heavily on bonds backed by subprime mortgages."

"An investor in Europe, who didn't want to be identified, says he's been trying to get his money out of the hedge fund since February."

"In a June 7 letter to investors, Bear Stearns says it's suspending redemptions because the 'investment manager believes the company will not have sufficient liquid assets to pay investors.'"

The Associated Press. "Millions of Americans with weak credit who took out mortgages the past few years are caught in a tug of war between hedge funds and lenders on Wall Street."

"Who wins the dispute could have more impact on how many homeowners get financial help to avert default and foreclosure than anything Congress or regulators are contemplating in the near term."

"Publicly, officials at banks and hedge funds say they want to do all they can to help distressed homeowners. Privately, however, a debate simmers over whether banks that sold bundled mortgages to institutional investors can legally pluck loans out of those bundles for workouts to help keep the default rates down."

"Hedge funds argue that the real motive might be to avoid paying what lenders owe on complicated financial contracts negotiated on the mortgages."

"Instead of having to pay on a contract at as much as 100 times the value of the underlying mortgage, 'it becomes cheaper for some folks to buy worthless loans,' says Harvey Pitt, a former chair of the Securities and Exchange Commission who represents a hedge fund."

"Unregulated hedge funds effectively assumed some of the risk lenders faced when they issued mortgages to borrowers with risky credit histories. Lenders, in turn, agreed to pay hedge fund investors if the value of defaults soared on bundled mortgages sold to institutional investors."

"Pitt says it would be market manipulation if lenders are trying to avoid paying on swaps. 'So far people are talking about wanting to do this, but I'm not aware yet that anybody's actually tried to do it...the important thing for folks to realize is that it's unlawful,' Pitt says. 'There can be litigation if anybody tries,' he added."

"Josh Tullis, who in his eight years as a senior loan officer rarely felt compelled to reject a first-time home buyer's mortgage application, is sending people away empty- handed in 2007."

"Tullis's latest clients are a married couple that banks ought to love. Between them they make $70,000 a year and they've been renting the same apartment for three years with zero late payments, he said."

"Lenders won't approve them because they don't have enough money in the bank, said Tullis, Virginia sales director at A. Anderson Scott Mortgage Group in Falls Church. With mortgage companies cracking down due to rising subprime defaults, Tullis needs them to sock away two months of payments for the $500,000 townhouse in Fairfax."

"'Six months ago, these folks might have qualified, a year ago, definitely,' Tullis said. 'It's a lot, lot harder than it used to be for first-time home buyers.'"

"'It all comes back to the first-time home buyer,' said Gary Balanoff, a real estate broker in Oviedo, Florida. 'If they could buy, we'd see a much better housing situation for everyone because it would start the domino effect.'"

"About 20 percent of U.S. mortgages issued last year were subprime loans to borrowers with bad or limited credit histories. One in four subprime home purchasers the last two years was a first-time buyer, according to the Mortgage Bankers Association."

"Countrywide Financial Corp., the biggest U.S. mortgage lender, made 60 percent of its subprime loans for home purchases to first-time buyers in the fourth quarter. The bank will reduce that to about 16 percent, Chief Operating Officer David Sambol said in a conference call."

"About 5 percent of the loans issued by Countrywide Financial this year will cover the full price of a home, down from 25 percent in 2006, Sambol said."

"Countrywide CEO Angelo Mozilo said in an interview that the cutback was made in response to concerns about the viability of subprime loans issued last year. 'We need to take a step back and make sure this readjustment hasn't gone too far,' Mozilo said."

"First-time buyers have a delinquency rate of up to 40 percent higher than other borrowers, said Andy Chawla, senior VP for risk management at IMPAC Mortgage Holdings Inc."

"Simply requiring a down payment of as low as 5 percent will disqualify one in four of the first-time buyers who were IMPAC customers a year ago, Chawla said. 'We're asking for skin in the game,' Chawla said."

The Street.com. "Toll Brothers CEO Robert Toll said on the company's recent earnings call that sales of the company's Brooklyn condos have been going 'pretty strong,' but he made no mention of the pricing problems at the developments."

"In recent weeks, the homebuilder slashed prices by nearly 20% to sell a block of condo units that have less-than-desirable views in the first tower of Northside Piers, TheStreet.com has learned."

"What's more, the company appears to be having trouble selling the remaining 11 units that also suffer from poor views at North 8, a nearby project that has had these units on the market since October 2006."

"'I think that some of the big buildings being built on the water will not appeal to everybody,' says Lior Barak, who handles new Brooklyn condo sales for real estate firm Prudential Douglas Elliman."

"Two-bedrooms and three-bedrooms have been a 'challenge to sell,' says David Von Spreckelsen, a VP at Toll Brothers who heads the New York City office. 'It's a younger market than we thought.'"