Some housing bubble news from Wall Street and Washington. "An index of pending sales of existing homes in the U.S. unexpectedly fell to the lowest level in more than four years in April, a further sign the real-estate slump may linger. The index of signed purchase agreements, or pending home resales, fell 3.2 percent to 101.4, the lowest since February 2003, after a revised 4.5 percent decline in March, the National Association of Realtors said today in Washington."

"The index was down 10.2 percent from April 2006. The index of pending home resales is considered a leading indicator because it tracks contract signings. The National Association of Realtors' existing-homes sales report tracks closings, which typically occur a month or two later."

"'Psychological factors seem to be holding buyers back as they look for clear signs that the market has bottomed,' said Lawrence Yun, senior economist for the Realtors."

"Today's report showed pending resales declined 10.4 percent in the Northeast and 10.2 percent in the West. They increased 2.3 percent in the Midwest and 0.7 percent in the South."

From Reuters. "Failures among subprime mortgages offered to borrowers with damaged credit is continuing to dampen the home sales market, the trade group said."

"'In April, existing-home sales declined in part because some subprime lenders went out of business and disrupted the market,' said Yun, the NAR senior economist."

The Star Ledger. "Hovnanian Enterprises Inc. reported yesterday it swung to a loss in the second quarter, giving the homebuilder a third consecutive quarterly loss."

"Revenue in the first quarter was 1.1 billion, down 29 percent from $1.6 billion in the same period a year ago. The company builds luxury homes in 17 states including California, Florida, New Jersey and New York."

"'We are frustrated to report that the housing market has continued to slip further in many loca tions in terms of both sales pace and sales prices,' said Ara K. Hovnanian, the company's CEO. 'The housing market weakened in the latter part of the second quarter, and the slower conditions have continued into May.'"

"Yesterday, Moody's Investors Services cut its ratings on Hovnanian, saying the homebuild er's cash flow from operations will likely remain negative amid the ongoing housing-sector slump."

From Bloomberg. "'We are not confident that we've seen a bottom,' in the housing market, CEO Ara Hovnanian said in the statement. He said he was confident that the company's current strategy of lowering prices would boost sales 'over time.'"

"'Lower prices offered to buyers to close homes during the quarter also led to a further reduction in margins and a net loss for the quarter,' Hovnanian said."

"Homebuilding gross margin, excluding interest, was 16.3 percent in the second quarter, compared with 23.7 percent a year earlier. Hovnanian announced preliminary results for the quarter on May 4 and said it delivered 30 percent fewer than a year earlier. Cancellations fell to 32 percent from 36 percent in the first quarter."

"Hovnanian reported...about $34 million in pretax charges for land-related write-downs and impairments."

"'We'll continue to monitor conditions in all of our markets, and if the weakness seen in the first few weeks of the third quarter continues, then we may have additional impairments in future quarters,' Ara Hovnanian, said in a conference call with analysts."

The Herald News. "Hovnanian and other builders have had to cut prices and offer incentives to buyers. Even so, many new-home buyers have walked away from contracts, often because they can't sell their own houses."

"Hovnanian was especially hurt by a market slump in the Fort Myers, Fla., area. After speculation drove up prices in that area, investors pulled out. As a result, inventories have soared and prices have dropped. Earlier this year, Hovnanian took a charge of $93 million related to its Florida losses."

The Financial Times. "Hedge funds are attacking bank decisions that help delinquent US mortgage borrowers remain in their homes."

"The funds fear that banks are making concessions on the underlying mortgages to avoid making good on derivatives contracts that pay off in cases of default."

"International Swaps and Derivatives Association, the derivatives industry body, to act on their concerns, according to a letter seen by the Financial Times."

"'ISDA should actively promote an industry solution that assures market participants that no one can engage in practices that are manipulative and prohibited by existing securities laws,' the funds said."

"Mortgage brokers and lenders concerned about a regulatory backlash by state officials are warning that weightier rules may force them to turn their backs on many consumers."

"The worst case scenario isn't inconceivable, lenders could stop providing credit in some locales, said Kenneth Logan, head of NovaStar Mortgage's warehouse lending before the company cut the program this year."

"'Capital (investor money) will leave' if regulation goes too far, Logan said, echoing others on a panel assembled by the Mortgage Bankers Association.

"'There are only two ways to clear out the existing housing inventories: If mortgage interest rates go lower or if sellers lower their prices,' said Mark Keisel, an executive VP with PIMCO. 'But it doesn't look like the Federal Reserve Bank is inclined to lower interest rates too much, and sellers are holding firm.'"

"'(Housing) inventories,' he observed, 'are the best predictor of the future direction of a housing market.'"

"'There are 3.7 million existing homes for sale in the U.S., which is 20 percent above where it was last year. Inventories are not going down, the number of vacant homes for sale has soared, and you have concessions being handed out by home builders,' he added."

"Amy Crews Cutts, deputy chief economist of Freddie Mac says...she isn't sure how bad the subprime market will get. 'We've never been in a subprime credit cycle like this, because overnight all the liquidity evaporated,' she explained. 'Who will service and negotiate these loans if the lenders have gone out of business?'"

"With mortgage fraud up an estimated 30 percent in 2006, Crews Cutts says it's also unknown what will happen to these homes when the buyers walk away. It could be part a big part of the 'vacant homes for sale' story."

"'The problem with subprime loans and option ARM loans and interest-only loans is that defaults are going up. But early payment defaults are also high,' she said."

"Subprime mortgages originated in 2006 are experiencing a greater number of defaults far earlier in the payment cycle than loans originated in previous years, Crews Cutts pointed out."

"'One and a half percent of these loans are going bad in month 14,' she explained. 'And the (interest rate) reset hasn't even happened yet.'"

"What will happen when $1 trillion in adjustable rate mortgages resets in the next year? That, say Crews Cutts and Keisel, will determine whether the real estate slowdown bottoms out this year, next year or at some indeterminate time in the future."