Some housing bubble news from Wall Street and Washington. MarketWatch, "General Electric Co. announced it is exiting the U.S. subprime-mortgage business. GE sold about 75% of its subprime portfolio during the second quarter, or $3.7 billion, resulting in a loss of $182 million for its WMC Mortgage business, the company said."

"'The business exit is in process,' Chief Financial Officer Keith Sherin said. 'We restructured the business to prepare for that exit (and) I think it was a smart move to remove the head wind and also reduce future risks.'"

From Bloomberg. "'The mortgage industry has greatly changed since the purchase of WMC,' Laurent Bossard, CEO of the division, said in an e-mail to employees yesterday. 'The current subprime market environment has made a significant negative impact on the business.'"

"WMC and a unit of Washington Mutual Inc. were among four subprime lenders whose loans were behind many of the Moody's Investors Service ratings downgrades on mortgage securities this week, the firm said yesterday."

From Reuters. "Rating companies began a new wave of rating cuts Thursday as they reassessed the fallout from deteriorating subprime loans, drawing increased scrutiny from investors who are questioning why the agencies failed to act earlier."

"Both S&P and Moody's now project cumulative losses for subprime loans originated in 2006 to reach as high as 14 percent, more than double projections at the start of the year. 'That's a huge change in their projections and has huge implications for the market,' said Inna Koren, an analyst at Barclays Capital."

"Fitch Ratings also on Thursday said it may cut ratings on 19 collateralized debt obligations, and has revised its CDO rating methodology, identifying 170 U.S. subprime transactions as requiring further analysis."

"S&P spokesman Adam Tempkin said on Thursday that the rating agency miscalculated by nearly $5 billion the amount of debt that may be affected in its review for potential ratings cuts."

"S&P corrected the volume of residential mortgage-backed securities it placed under review for downgrade to $7.35 billion from its $12.1 billion estimate on Tuesday. 'It was an error and we corrected it,' Tempkin said. 'It was human error. It is what it is.'"

"'That doesn't sound as if they were in charge of the credit judgments of the Western world, does it?' asked James Grant, editor of the highly regarded Grant's Interest Rate Observer, on S&P's $5 billion error."

"(Moody's and Standard & Poor's) should scrap every appraisal on the subprime portion of the $503 billion of CDOs sold globally in 2006, according to Mehernosh Engineer, a credit strategist at BNP Paribas SA. Because people were able to borrow money without credit checks in last year's freewheeling mortgage market, the rating companies have no right to use inductive reasoning to predict the likely defaults on subprime CDOs."

"'Their models are basically unable to predict any 'normal' behavior due to this overriding fraud factor,' Engineer wrote this week. 'The right thing for the rating agencies to do for the 2006 vintage would be to withdraw all ratings.'"

The Des Moines Register. "A subprime home finance company will pay $2.3 million to Iowa homeowners to settle charges that its employees inflated appraisals and encouraged buyers to lie on loan applications."

"Ameriquest Mortgage Co. will make the restitution as part of a nationwide $325 million settlement over its lending practices. Iowa Attorney General Tom Miller announced the settlement on Thursday, estimating that 3,800 Iowans will be eligible to receive from $119 to $1,761 each."

From ABC7.com. "Former Ameriquest customer Constantino Martinez says he was taken advantage of. The interest on his mortgage was nearly double the going rate and property taxes were never added to his monthly payment like he was told, sending him to near foreclosure."

"'I feel so bad. I feel so bad, I don't even want to remember those guys,' Martinez said."

"State Attorney General Jerry Brown began mailing out claim forms Thursday to about 80,000 customers of Ameriquest and its affiliates in California. $51 million is California's share, meaning the average restitution is around $800."

The New York Sun. "It's clear that the national housing horror show is far from over. If anything, it's getting gorier."

"'Plainly, the lackadaisical lending standards by the mortgage crowd just a few years ago are now showing up at Wall Street's doorstep,' wrote Raymond James Financial's chief investment strategist, Jeffrey Saut."

"A veteran multiregional residential real estate developer in Lake Forest, Ill., Robert Sheridan, also paints a bleak picture. 'The housing market is getting darker and darker,' he said. The full effects of the subprime crisis, as they relate to tighter lending standards, have yet to be felt, he adds."

"A year from now, he figures, single-family home prices should fall 5% to 10% nationally versus current levels. He sees an even bigger drop, 10% to 20%, in condo prices, with high-end condos — those priced at $750,000 or more, vulnerable to 20% to 40% declines."

"Mr. Sheridan believes a housing recovery is at least two years off. The bottom line on housing: Call the exterminator. The financial termites are out in full force and lots more are on the way."

"U.S. class-action lawyers who have sued subprime mortgage lenders are now scrutinizing Wall Street banks that sold packages of risky loans to investors and credit analysts that served up top ratings on the securities."

"Plaintiffs' lawyers say they want to know more about the relationship between the credit rating services and investment banks that assembled complex debt structures known as collateralized debt obligations, or CDOs, tied to risky mortgages."

"'There's no question that there is a careful examination going on right now of what role the rating agencies played here, what they knew and when they knew it, as well as the investment banks,' said Gerald Silk, a partner at (a) plaintiffs' law firm."

"Silk's New York-based firm represents investors who are suing bankrupt subprime lender New Century Financial Corp and Accredited Home Lenders Holding Co. The lawsuits contend that shareholders were duped about the companies' finances."

"While the rating services argue that they are merely offering opinion, they are involved in a lot more, said Joseph Mason, an associate professor of finance at Drexel University in Philadelphia."

"He said they work directly with underwriters to determine the size of each tranche, or group of debt, and are active in the entire structuring of CDOs to achieve a rating target."

"'The rating companies view is we offer an editorial opinion,' Mason said. 'That's clearly not the case. Rating companies are involved in financial engineering.'"

The Associated Press. "Lawsuits blossomed after Enron Corp.'s collapse, many targeting the energy giant's bankers. Wall Street firms could again become the bull's-eye for investors seeking recourse from the subprime mortgage debacle."

"Investors 'are going to be looking for deep pockets where they can maximize their recoveries,' said Rick Antonoff, a New York-based lawyer with Pillsbury Winthrop Shaw Pittman, which has a group of lawyers assigned to subprime mortgage litigation."

"Homeowners are suing lenders. Shareholders are suing collapsed mortgage companies. Investors in complex mortgage securities are starting to sue big Wall Street banks. Those investment banks are turning around and suing the mortgage companies."

"Florida lawyer Dale Ledbetter, the plaintiffs' lawyer, said he is working on several similar cases, adding that the subprime mortgage boom could not have happened without Wall Street's help. 'What people are not focusing on is the top of the pyramid,' Ledbetter said. 'They were doing almost no due diligence on those loans.'"

"One indication of how the lawsuits play out could be in last month's settlement of a class-action lawsuit filed in a Tacoma, Wash., federal court against subprime lender NovaStar Financial Inc."

"Just before the trial began, Kansas City, Mo.,-based NovaStar negotiated a $5.1 million settlement, which involved 1,600 plaintiffs who claimed the company overcharged them through fees paid to mortgage brokers. The company faces a similar lawsuit in California."

"Ari Brown, a Seattle-based lawyer for the plaintiffs, said cash rebates to mortgage brokers, known as yield-spread premiums, were either disclosed to borrowers on the day loan documents were signed, or not at all. Such practices, which were prevalent at numerous subprime lenders, made it difficult for borrowers to dispute a loan's terms, he alleges."

"'Everybody got on this gravy train,' Brown said. 'There was so much money to be made in subprime lending.'"

"The legal fallout will extend beyond the private sector. New York's Andrew Cuomo and several other state attorneys general are investigating the subprime industry's practices."

"Marc Dann, the attorney general of Ohio, a state hit hard by foreclosures, is taking an especially aggressive approach and pursuing civil and criminal cases. Dann said he is considering a broader case against Wall Street banks, lawyers and bond-rating agencies."

"'We're looking at how do we bring a case that really gets to the heart of this problem,' Dann said. 'This irrational market for these loans was created on Wall Street.'"