Some housing bubble news from Wall Street and Washington. Associated Press, "Countrywide Financial Corp., the nation's largest mortgage lender, has begun laying off staff as part of its effort to ride out the credit crunch that has rocked the home loan industry, according to a report published Monday. Countrywide is the largest mortgage lender by volume, accounting for more than 13 percent of the loan servicing market as of June 30, according to the mortgage industry publication Inside Mortgage Finance."

From Reuters. "NovaStar Financial Inc, a subprime mortgage lender, said on Friday it will fire about 500 employees, or 37 percent of its work force, as it reduces home loans, given tough capital markets conditions."

"NovaStar has said second-quarter loan volume fell 73 percent from a year earlier to $773.7 million, and that third-quarter volume should be 'substantially' lower."

From Bloomberg. "Thornburg Mortgage Inc., forced to stop taking home-loan applications last week because of a cash crunch, sold $20.5 billion of mortgage-backed securities at a discount to pay down debt it couldn't refinance."

"The company will post a loss of $930 million on the sale in the third quarter, resulting in a probable net loss for the full year, President Larry Goldstone said. Thornburg specializes in adjustable-rate 'jumbo' loans of more than $417,000 to people with good credit."

"'Investors' confidence in the mortgage financing space is not doing well,' said Larry Goldstone, in an interview with CNBC television on Monday."

"Luminent Mortgage Capital Inc, which has struggled with liquidity problems because of mortgage investments, on Monday announced a bailout in which it would sell a majority stake in itself at a deep discount."

From Dow Jones Newswires. "Luminent shares plunged last week after the company said eight of its creditors have declared defaults under lending agreements."

"Luminent said the lenders alleged that the company has failed to meet margin calls or repurchase financial assets under these agreements. The lenders are now demanding immediate payment of roughly $1.6 billion, the company also noted in its filing with the Securities and Exchange Commission."

From MarketWatch. "Mortgage-buyer Fannie Mae will skip a benchmark debt offering for the first time since May 2006, the company said Monday. Fannie is permitted to pass twice a year on the offerings."

"On its web site, Action Economics said the move 'suggests that demand [for] even high-rated mortgage paper is scant at the moment and impacting funding plans at the agency.'"

The New York Times. "As far back as 2001, advocates for low-income homeowners had argued that mortgage providers were making loans without regard to borrowers’ ability to repay. Some of these players now find themselves in a dual role as enabler and victim, like the legions of individual borrowers who were convinced that their homes could only keep rising in value and were confident that they could afford to stretch for the biggest mortgage possible."

"'All of the old-timers knew that subprime mortgages were what we called neutron loans – they killed the people and left the houses,' said Louis Barnes, a partner at a mortgage banking firm in Lafayette, Colo. 'The deals made in 2005 and 2006 were going to run into trouble because the credit pendulum at the time was stuck at 'Easy.'"

"Solent Capital Partners LLP, the $8.8 billion U.K. hedge fund manager, may be forced to sell assets in a unit that invests in mortgage-backed securities after lenders refused to provide it with short-term funding."

"Companies are finding it 'difficult to get the cheap funding they're used to,' said Priya Shah, a structured credit analyst at Dresdner Kleinwort in London. 'We will see more of these.'"

"SachsenLB, the second German bank to be hit by difficulties stemming from the U.S. subprime mortgages crisis, must be sold as part of a state-led rescue deal, sources familiar with the matter said on Monday."

"The potential sale is the first clear signal the subprime mortgage collapse could accelerate the consolidation of government-owned banks in Germany."

The Telegraph. "Switzerland's top banker has warned of massive losses from the unfolding credit crisis. Jean-Pierre Roth, president of the Swiss National Bank, said market turmoil was far from over as tremors from the sub-prime debacle continued to rock the world."

"'We're certainly not at the end of the story. There are question marks surrounding the development of the American economy,' he said. 'Something unbelievable happened. People who had neither income nor capital got credit with very attractive conditions. Now reality is striking back,' he said."

"German banks' assurances that they hold only top-rated debt securities amid credit market turmoil may not shield them from expensive asset writedowns. Credit rating agencies have already downgraded hundreds of mortgage-related securities and warned more could follow."

"'High ratings alone are no guarantee that something is good,' Joerg Schneider, chief financial officer at German reinsurer Munich Re, said earlier this month."

"The correlation of U.S. subprime mortgage risks may be much bigger than originally assumed across ratings grades because a higher share of debtors could be affected by a decline in house prices, he said."

"'I have potential impairments of some AA- and AAA-rated assets in my worst-case scenario,' Schneider said."

"U.S. legislators will ask rating agencies why they made 'mind-boggling' decisions to award investment grades to questionable mortgage-backed securities, Senator Richard Shelby said on Monday."

"There will be hearings..., there will be calls for more regulation,' Shelby told a news briefing in Brussels. 'How did they reach the conclusion that these packages of subprime questionable loans could be deemed...investment rate bonds?' he said. 'It's just mind-boggling.'"

"Shelby said banks would increase their mortgage rates in the coming weeks, exacerbating a credit crisis that has snowballed in recent weeks as defaults on risky U.S. subprime mortgages hit banks across the globe."

"'I think it will get worse before it gets better,' he said. 'There will be firms that will not survive, I don't think we should bail them out.'"

"The Fed's discount rate cut on Friday and injection of billions of dollars into the banking system earlier in the week alleviate only some of the stress. Wall Street observers say there is still plenty of risk out there, and the aftershocks from the failure of billions of dollars in subprime loans have yet to be felt."

"'What the Fed did was about consistent with putting a Band-Aid on a gunshot wound,' said Chris Johnson, founder of Cincinnati-based Johnson Research Group. 'You have a situation where the subprime concerns have spread, and there are still a lot of things going on in this market that are just wrong.'"

The LA Times. "Pep talks were not on the agenda this weekend as beleaguered mortgage industry professionals attended an exposition in Long Beach. After all, the keynote speaker was William Dallas, whose Ownit Mortgage Solutions Inc. was one of the first lending companies to fold last year amid a sharp downturn in the housing market."

"'People ask me why I don't get back into the mortgage business,' he told a crowd of about 200 on Saturday. 'Because I'm not stupid.'"

"'As brokers and originators, we need to decide what to do,' he said. 'Everybody likes a murder, everybody likes a tragedy. And this is clearly a tragedy today.'"

"It was a theme echoed repeatedly at the expo, where strategic financing and charting a course for the future were popular catchphrases. With about 1,500 attendees and 220 exhibitors, the event capped off a three-day convention of networking opportunities and workshops with titles such as, 'Shut Up, Stop Whining and Get a Life!'"

"'The general mood of the convention is 'upbeat-stunned,' said Peter Ogilvie, president of the California Assn. of Mortgage Brokers, on Saturday."

"Patrick Griffith, a senior loan officer from Hermosa Beach, said he came to the expo to 'see what lenders are still out there, see who's left.' 'It's just got to shake out,' Griffith said. 'Real estate is always cyclical. Every 10, 12 years the same thing happens.'"

"But he said the current cycle is worse because of the 'exotic loan products' that flooded the market during the housing boom, making it easy for those with low credit scores to gain approval for loans."

"'We have yet to see the worst,' he said. 'It's just starting now.'"

"John Phung of Irvine said he didn't think the market would ever return to what it was just a few years ago. These days, the loan originator said he closes just one or two loans a month and that the Newport Beach-based mortgage brokerage where he works has cut back on promotions."

"Phung said he and his wife, a mortgage broker, have been focusing on 'just making ends meet.' 'This is the first time we're experiencing hardship,' he said. 'We're trying to take it in stride and hope for the best.'"

"On Sunday, Dallas agreed that the mood at the convention had been subdued. 'It was almost like a going-out-of-business sale,' he said. 'It was as somber as I've seen.'"