Some housing bubble news from Wall Street and Washington. Associated Press, "Homebuilder M/I Homes Inc. on Thursday withdrew its full-year earnings guidance and said it may book up to $75 million in charges in the second quarter, as the persistent housing-market slump led to lower deliveries. M/I...said falling home prices amid tepid demand makes it 'difficult for us to predict either our new contracts or margins.'"

"The company joins a host of other builders that have pulled their financial targets for the year. Many have been forced to offer major price incentives to sell houses."

"In the quarter, which ended June 30, M/I deliveries fell 24 percent to 755 homes from 987 a year ago. New contracts slipped 10 percent to 688."

From Reuters. "'Today's announcement is further evidence of the challenging and uncertain conditions facing the home building industry,' M/I CEO Robert Schottenstein said in a statement."

"Conditions deteriorated in the second quarter as a result of credit tightening and difficulties in the subprime market, excess inventory of new and used homes, and weakening demand, the company said."

"The average sales price of a home in backlog was $327,000, compared with $355,000 at the end of June 2006."

The North County Times. "Some investors are skeptical that Accredited Home Lenders' purchase by a Texas-based private equity fund will go through, analysts watching the company said Tuesday."

"Some investors may think there's a 'ticking time bomb' in Accredited loans yet to be discovered, said Bud Leedom, publisher of the California Stock Report."

From Newsday. "American Home Mortgage Investment Corp., the Melville-based real estate investment trust, has laid off hundreds of workers without notice or even time to clear out their desks, current and former employees said this month."

"The company, which holds diverse interests in mortgage-related securities and retail lending, was once considered a highflier, posting double-digit growth quarter after quarter in recent years."

"But as things turned south for many housing-related businesses, American Home has offered what one analyst called 'overly rosy' earnings predictions."

The Sydney Morning Herald. "A Sydney-based hedge fund manager that manages $US 2.5 billion has put a limit on withdrawals from two of its funds that invest in risky debt products known as collateralised debt obligations, expressing fears the funds would otherwise not survive."

"Limits on withdrawals on the two Basis Capital Funds Management funds were imposed after the funds fell during June, by 14 per cent for the BasisYield Alpha Fund, and 9 per cent for the Basis Pac-Rim Opportunity Fund."

"A newsletter distributed to unit holders said the imposition of withdrawal limits, known as gates, were 'designed at inception to ensure [the funds'] survival through periods of extreme dislocation such as this.'"

"The newsletter specifically singled out credit ratings agencies' moves to downgrade their ratings for risky debts, which are being repriced in the wake of large losses stemming from US 'subprime' lending to householders."

From Bloomberg. "TCW Group Inc. and GSC Partners created the most collateralized debt obligations that are now at risk of having their credit ratings slashed because they are backed by some of the worst-performing subprime mortgage bonds."

"TCW of Los Angeles and GSC, a New York-based investment firm, manage 12 CDOs that will likely face ratings cut on a portion of the securities they issued, a report by Bear Stearns Cos."

"TCW managed $27.6 billion in 29 CDOs containing asset-backed securities as of Dec. 31, according to S&P. Risk Magazine named TCW its 2006 'CDO Manager of the Year.'"

"'Our transactions have a high subprime percentage and we were affected by the agencies' re-rating of subprime,' GSC Partners Managing Director Edward Steffelin said in an interview. The firm has 'steered away' from securities backed by second- lien loans and mortgages to borrowers with good credit scores who decline to give information such as proof of income, he said."

"Shares of some mortgage lenders fell Wednesday as investors worried that problems in the subprime mortgage market could spread more widely in the industry."

"'If it gets worse, the next area to see losses and price declines is the alt-A market,' said Bose George, an analyst at Keefe, Bruyette & Woods Inc."

"Rating agencies are likely to review bonds backed alt-A mortgages in the near future, said Scott Valentin, managing director of specialty finance research at Friedman, Billings, Ramsey & Co. 'It probably will not be as bad as subprime, but there will likely be downgrades' among alt-A-backed mortgage securities, Valentin said."

"On Wall Street, where the $800 billion market for mortgage securities backed by subprime loans is coming unhinged, traders are belatedly acknowledging what they see isn't what they get."

"Some of the securities have already declined by more than 50 cents on the dollar in the past few months, according to data compiled by Merrill Lynch & Co."

"One subprime mortgage bond, Structured Asset Investment Loan trust 2006-3 M7, was valued at about 91 cents on the dollar to yield 9.5 percent, according to the securities unit of Wachovia Corp. Wachovia today valued that security at 76 cents on the dollar for a yield of 15.9 percent, said spokeswoman Amy Jones. Merrill Lynch in New York puts the price of the same security at 67 cents to yield 18 percent. "

"At least a third of hedge funds that invest in asset-backed bonds pick and choose values for their investment that help mask wide swings in performance, according to a survey of 1,000 funds worldwide by Paris-based Riskdata, a risk management firm for money managers."

"'If you have five different brokers you will get five different quotes, so if you don't have an objective valuation process you can choose the quote which for you is the most interesting,' said Olivier Le Marois, CEO of Riskdata. 'There's no consensus on where the market price is.'"

"More than a few investors would like to know what took the New York-based rating companies so long. 'I track this market every single day and performance has been a disaster now for months,' said Steven Eisman, who helps manage $6.5 billion at Frontpoint Partners, during a conference call hosted by S&P yesterday. 'I'd like to understand why you made this move now when you could have done this months ago.'"

From Dow Jones. "Until now, the pricing of risks linked to housing and subprime mortgages remained something of a mystery, as risks remained hidden in the complex world of credit derivatives. But changes in ratings will force a re-pricing of the roughly $800 billion in subprime-mortgage bonds sitting in investment portfolios across the globe."

"'Whenever you have such a massive growth in derivatives, as we had with housing, it's [used] to hide the losses,' said Matt Smith of Smith Affiliated Capital. 'Nobody knows the true counterparty risks.'"

"Some market players believe that, with the rating agencies making their moves so late in the game, they're seeing a replay of the Enron and WorldCom debacles, which played significant parts in popping the 1990s stock-market bubble."

"The rating agencies, then as now, have come under fire for changing their ratings only after the bad news was already out."

"'The credit agencies are always lagging,' said Smith Affiliated Capital's Matt Smith. 'But the main difference between now and 2000 is that you could sell stocks quickly; for the real-estate market, it takes three or four years to unfold.'"

The New York Post. "FDIC Chairman Sheila Bair said she expects a CDO time bomb. 'We're going to see more downgrades,' Bair said, adding that she expects the bad news to 'creep into higher-rated' securities."

"Its going to get worse before it gets better. How much worse, I don't know,' Bair said."

"Federal Reserve Governor Randall Kroszner on Thursday said the central bank is studying whether it can write rules to shield home buyers with blemished credit without choking off lending."

"Banking supervisors are monitoring whether there may be any interruptions to liquidity in mortgage security markets as a result of turbulence over subprime mortgages, Kroszner said."

"The market for repackaging subprime loans into mortgage backed securities 'seems to have been maintaining its liquidity reasonably well,' he said. 'The main difference is that the pricing has changed dramatically in this market, not only for the lowest rated tranches, but the highest rates tranches,' he added."

"The U.S. Securities and Exchange Commission adopted new rules ensuring it can sue hedge funds for misleading investors, following a court ruling that put in doubt the regulator's authority over the $1.6 trillion industry."

"The SEC barred hedge funds from lying about investing strategies, performance, a manager's experience and the risks of putting money in a fund. SEC commissioners unanimously approved the rule at a public meeting in Washington."

The LA Times. "Members of Congress on Wednesday had a message of caution for the booming, unregulated hedge fund industry: Proceed with care, because lawmakers are increasingly willing to clamp down to ensure integrity in the marketplace."

"As warning signs, lawmakers cited the ongoing woes involving mortgage-based securities, the recent bailout of two hedge funds by Bear Stearns Cos. and an ill-fated investment by San Diego County's retirement fund in the Amaranth Advisors hedge fund. Others on the panel expressed unhappiness about the widespread real estate foreclosures and mortgage delinquencies."

"Rep. Barney Frank told reporters he might introduce legislation this year that would require hedge funds to save various documents, such as trading records and e-mail, that could be of use to law enforcement officials in cases of fraud."

"Perrie Weiner, a partner with law firm DLA Piper in Los Angeles, termed such a mandate 'extreme and unjustified' and said document retention had never been an issue in cases he was familiar with."

"'It would create a new and unjustifiable burden on ordinary businesspeople that can only be viewed as a harbinger for an emerging witch hunt of epic proportions,' he said."