Some housing bubble news from Wall Street and Washington. "Homebuilder Meritage Homes Corp. said Wednesday it expects to fall short of its previous 2007 guidance as a result of weaker-than-expected April and May home sales. According to preliminary figures, net sales for the first two months of the second quarter were about 21 percent lower than the same period last year, Meritage said."

"In addition, cancellations increased to 36 percent of gross orders from 27 percent in the first quarter, the company said."

The Street.com. "'We were encouraged by sales and cancellation rates that improved each month of the first quarter, leading us to anticipate relatively stronger second quarter sales results,' said Steven J. Hilton, CEO of Meritage. 'But these positive trends ended at the beginning of April, as demand slowed and cancellations rose. The weaker conditions we noted in April when we reported our first quarter results, continued through May.'"

From Reuters. "'Weaker demand has predictably led to further price competition and margin deterioration, which we believe will prevent us from achieving the guidance we provided on April 25. It also increases the risk for larger associated write-offs of options and impairment charges, which could significantly impact our near-term profitability,' Hilton said in a statement."

From Bloomberg. "A 14-year high in the number of homes for sale in April is sapping consumer confidence in the housing market during a time of year that traditionally is the strongest for real estate, said Lawrence Yun, an economist for the National Association of Realtors."

"A 'sluggish' spring selling season will help to shave more than a percentage point off U.S. economic growth in 2007, he said."

"'People are looking, but they're not buying,' Yun said in an interview. Real estate agents report 'an increase in traffic at open houses, but people are taking their time because inventory is so plentiful.'"

"Sales of new houses probably will drop 18 percent this year, matching last year's decline, the association said in the forecast. Builders probably will sell 860,000 houses, down from 1.05 million last year. In 2005, a record 1.28 million new houses were sold."

"The troubles of the U.S. high-risk mortgage markets seem to be contained but it is too soon to say they are over, Federal Reserve Governor Kevin Warsh said on Tuesday."

"He was cautious on calling the end of the downturn in the U.S. housing market. 'It would be premature for us to call that chapter complete,' Warsh said."

"Mortgage brokers and lenders may be headed for a standoff. The housing slump, now in its second year, is testing alliances between the two, who have become more mutually dependent as the competition for borrowers has intensified."

"Lenders have been telling brokers to make good on contracts that previously had been ignored, or are refusing to soften contract language that had allowed brokers to wash their hands of responsibility after a loan is closed, brokers said."

"'I've seen cyclical swings before but I haven't seen them (lenders) going after the brokers,' said Eric Weinstein, CEO of one of Carteret Mortgage Corp., the nation's largest privately held brokers. 'Lenders make the decisions, I'm just selling what they have out there.'"

"Carteret is rejecting one in every two contracts today, compared with one in 20 a year ago, he said."

"Lender-broker contracts 'weren't particularly strict, nor enforced,' said Scott Everett, president of Supreme Lending, a mortgage broker in Dallas, Texas. But now he digs out those contracts frequently to fend off lender assertions of liability."

"'Two years ago, I never even had (a loan buyback demand) and now I get them every week,' said Everett, a mortgage broker since 1993."

"With the incidence of buybacks from investors on the rise, lenders are becoming more litigious, said Douglas L. Davies, a Seattle-based lawyer who represents lenders and brokers. He warned of 'gridlock' in the mortgage market."

"'As the players become embroiled in litigation, they stop doing business with one another and instead spend scarce resources trying to hash out the issues in court,' he wrote in a trade publication."

"The Financial Accounting Standards Board (FASB) is planning to talk with banks directly about frustrations its FAS 140 rule may be causing as they try to fix the subprime mess, a Board member said on Wednesday."

"'Our staff has been getting many, many questions about workouts,' FASB member Leslie Seidman said."

"'What has become clear to me is that...if there hasn't been a free and clear sale, they are unwinding the accounting and putting assets and liabilities back on the books,' Seidman said. 'I've come to the conclusion that...we're going in the wrong direction, trying to maintain a standard that's taking assets off the books when investors view it as economically still associated with the seller.'"

The Associated Press. "Italian lawmakers on Wednesday criticized major U.S. credit rating agencies, saying they ill-served international financiers by failing to properly evaluate the risks of investments tied to residential mortgages."

"The U.S. ratings market is dominated by three companies: Moody's Corp., Fitch Ratings and Standard & Poor's, a division of McGraw-Hill Cos."

"The letter said those agencies failed to accurately assess the risks of bonds backed by subprime mortgage loans. About 13.3 percent of subprime loans were delinquent in the fourth quarter of 2006, according to S&P."

"'The established agencies...face little competitive pressure to improve the quality of their ratings,' the Italians wrote. 'Many of the leading credit rating agencies are marred by conflicts.'"

"Subprime is not sublime for the prices of U.S. government-backed mortgage bonds."

"The deterioration of the subprime mortgage market should increase the supply of Ginnie Mae mortgage-backed securities as more consumers turn to government lending programs for their housing needs."

"'One of the factors pressuring Ginnie Mae spreads recently has been expectations supply will be increasing as some subprime borrowers find their way into Ginnie Mae securities,' said Scott Kirby, (who) oversees roughly $25 billion in an array of different mortgage-type securities."

"'If that happens, the additional supply will need to be absorbed by the market, and so prices are currently under pressure in anticipation of further supply increases,' he said."

"Michael Frenz, chief operating officer at Ginnie Mae, acknowledges the added volume should put price pressure on the bonds."

"But not everyone is expecting issuance to rise. 'I don't expect a lot more Ginnie Mae supply, because the Ginnie Mae borrower and the subprime borrower are not necessarily synonymous,' said Walter Schmidt, senior VP of mortgage strategy and research at FTN Financial Capital Markets."

"The benchmark 10-year U.S. Treasury note's yield surpassed 5 percent for the first time since August after New Zealand unexpectedly raised interest rates, igniting concern other central banks will respond to faster global growth."

"Interest-rate futures and options showed traders who as recently as December were betting on three quarter-percentage point rate cuts by the Federal Reserve this year boosted bets on an increase in borrowing costs."

"Yields are rising, led by long-maturity debt, in part because foreign appetite for Treasuries is abating, traders say."

"'The great conundrum that Chairman Greenspan spoke about many years ago, driven by global reserves recycling into U.S. Treasuries, is unwinding, leading to higher long yields and steeper curves,' said Brian Varga, head of U.S. Treasury trading at Countrywide Securities Corp. 'Yields are competing for capital with equities and other riskier asset classes.'"

"'Investors took fright at the New Zealand move,' said Stuart Thomson, who manages 23 billion pounds ($45.6 billion) in bonds at Resolution Investment Management Ltd. 'Global growth is too strong; yields have to rise. The trend is bearish.'"