Some housing bubble news from Wall Street and Washington. The Atlanta Journal Constitution, "Atlanta-based Beazer Homes appears to be struggling to avert bankruptcy. The troubled home builder filed a complaint Tuesday in U.S. District Court in Atlanta asking that the court prevent its creditors from calling for immediate repayment of about $1.3 billion in loans."

"'It's clear that Beazer way overextended themselves during the boom period,' said Barry Ritholtz, president of Ritholtz Research and Analytics."

"Reports in Charlotte of unusually high foreclosure rates in Beazer communities sparked an investigation by the U.S. Attorney's Office there into whether the company's mortgage arm filed false loan documents so Beazer could sell houses to unqualified buyers who later defaulted on the payments."

"That news was followed by an SEC investigation, as well as pending lawsuits by Beazer's customers, shareholders and pension plan participants."

"'All the other improprieties have given these creditors no reason to cut these guys any slack. The creditors will get paid in full. They don't care if the company goes belly up,' Ritholtz said. 'It's heartless and cold, but, as they say on Wall Street, if you want a friend, go get a dog.'"

The Associated Press. "Moody's Investors Services on Tuesday placed the credit ratings of three leading homebuilders under review for a possible downgrade. Moody's said the review will look at whether the builders will be able to reduce their respective inventories of unsold homes."

"Most homebuilders overbuilt during the five-year housing boom that ended two years ago."

"Now that cancellation rates among potential buyers are rising again, 'these physical industry reductions will be harder to achieve,' Moody's said. The agency will also review whether the companies can continue to generate positive cash flow, which they have done by selling homes at sharply discounted prices."

From Reuters. "Countrywide Financial Corp. CEO Angelo Mozilo said Thursday the housing market is showing no signs of improvement and could lead the U.S. into a recession."

"In a televised interview, Mozilo said, when asked if housing would lead the United States into a recession: 'I think so ... I can't believe ... that this doesn't have a material effect ... on the psyches of the American people and eventually on their wallet.'"

"There is a 'very serious situation going on' in the U.S. housing market, Mozilo told CNBC Television. 'This environment is certainly not getting better.'"

"The cost to insure the debt of Countrywide's home loan unit rose to around 187 basis points, or $187,000 per year for five years to insure $10 million in debt, after earlier trading at 150 basis points, according to data by CMA DataVision."

"Fitch Ratings said Thursday it is changing the way it judges insurers' credit risks to assume more borrowers will default on their mortgages, possibly leading to some downgrades of mortgage insurers' credit ratings."

"Fitch hiked the likelihood of default in its model by 20 percent to better reflect the risks of the current mortgage market, which has been marked by deteriorating home prices and decaying credit quality."

"Moody’s Investors Service on Wednesday downgraded the servicer quality ratings of several mortgage servicers, including NovaStar Mortgage Inc., citing increasingly difficult market conditions."

"Moody’s also downgraded Accredited Home Lenders Inc., Specialized Loan Servicing LLC and Fremont Investment & Loan."

"German banks wrestled to break free of liquidity bottlenecks on Thursday amid talk that foreign lenders were not loosening their grip on cash. Money market dealers complained that the situation for German banks was still tight despite big inflows of central bank money aimed at smoothing interbank lending."

"'The people who require the money still can't get the money,' said a trader at a large bank. 'The money is lying in the wrong place and wrong bank accounts. The people who have it aren't lending it out.'"

From Bloomberg."Outstanding U.S. commmercial paper fell 4.23 percent, the biggest weekly drop in almost seven years, as investors fled asset-backed debt and opted for the safety of Treasuries."

"The decline in outstanding commercial paper was driven by a 6.8 percent fall in asset-backed commercial paper, which represents about half the commercial paper market and has been used to finance purchases of subprime mortgages."

"Outstanding paper may slump by a total $300 billion, representing the entire amount of debt backed by home loans, said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co."

"'The shrinkage of the commercial paper market will force companies to obtain money elsewhere,' Crescenzi said. 'Some will be unable to obtain funding and will shut or scale back their operations.'"

"'There is a significant amount of cash in the system, it's just not getting to the parts of the market that need it,' Conrad DeQuadros, a senior economist at Bear Stearns Cos., said."

"U.S. banks and thrifts suffered the biggest increase in late loan payments in 17 years as more homeowners fell behind on mortgages, the Federal Deposit Insurance Corp. said yesterday."

"Loans more than 90 days past due rose 10.6 percent to $66.9 billion in the period ending June 30, the largest quarterly increase since 1990, the FDIC said in its Quarterly Banking Profile."

"Lenders set aside $11.4 billion for potential loan losses in the second quarter, up 75 percent from a year earlier and the most since the fourth quarter of 2002. The amount lenders wrote off for bad loans grew 51.2 percent to $9.16 billion in the second quarter from $6.06 billion in the second quarter of 2006."

"Residential mortgage loans 90 days delinquent increased 12.7 percent to $27.5 billion in the second quarter from $24.4 billion in the first quarter."

"'Current conditions do underscore that regulators must be vigilant and banks need to follow sound risk-management practices,' said FDIC Chairman Sheila Bair."

From Fortune. "Judging by its cautious and finely-calibrated responses through a very ugly August, the Fed appears keen to put the Alan Greenspan years firmly in the past and take a much more orthodox approach to monetary policy."

"'I think Greenspan would have cut rates already. So I do think things are beginning to look different at the Fed,' says Paul Kasriel, economist at Northern Trust."

"In a June speech, Bernanke commented on the shake-out in subprime mortgages in a conspicuously neutral way, suggesting the Fed was monitoring housing problems, but was not unduly concerned by adjustments taking place in it."

"'I think the Fed is happy to see that risk aversion is increasing,' says Kasriel."

"The Federal Reserve's strategy of increasing liquidity rather than resorting to a cut in the benchmark interest rate survived a third day."

"Chairman Ben S. Bernanke wants to avoid an emergency easing of monetary policy, contrasting with predecessor Alan Greenspan, who cut the federal funds rate target three times in 1998 after the collapse of Long Term Capital Management LP."

"'We did use the fed funds rate and that may have been a mistake,' said former Fed Vice Chairman Alice Rivlin, who voted for the 1998 rate cuts. 'It might have been smarter to try what they are trying.'"

"Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co., urged the Bush administration, rather than the Federal Reserve, to bail out U.S. homeowners to avoid 'destructive housing deflation.'"

"'This rescue, which admittedly might bail out speculators who deserve much worse, would support millions of hard working Americans whose recent hours have become ones of frantic desperation,' said Gross."

"'Even cuts of 200-300 basis points by the Fed would not avert a built-in upward adjustment of adjustable-rate-mortgage interest rates,' Gross said. 'Nor would it guarantee that the private mortgage market, flush with fears of depreciating collateral, would follow the Fed down in terms of 15-30 year mortgage yields and relaxed lending standards.'"

"If U.S. home prices fall by 10 percent, it would be the worst asset deflation in the U.S. since the Great Depression, according to Gross."

"'Now many of those that bought homes in 2005-2007 stand a good chance of resembling passengers on the Poseidon -- upside down with negative equity,' he said."

The Washington Post. "Memo to the media: Everyone who is defaulting on a home mortgage is not necessarily a victim."

"Some were undoubtedly pressured into buying by unscrupulous lenders. Too many greedy players on Wall Street got away with making shaky loans for too long. They sliced and diced mortgage debt into increasingly exotic paper and lost sight of the risks involved, figuring the Fed would bail them out if things got out of hand."

"But let's face it: Most of the people who took out home mortgages for no money down knew that this was a roll of the dice."

"Who gets to buy a house without a down payment? And most of those who took out adjustable-rate mortgages knew that their rate would balloon in a couple of years, and could do so at a level that would be hard to afford. They took the risk anyway. No one forced these folks to take on big mortgages they could barely handle."

"My colleague Michael Rosenwald owned up to this the other day, describing how he and his wife bought a $459,000 Maryland home with an interest-only, adjustable-rate mortgage just as the housing bubble was about to pop. Now he's facing a difficult time, with a rate that could jump to 10.1 percent."

"He'll probably be okay; many others are not. Like people who raced to buy dot-com stocks of companies with no profits, folks bought houses they couldn't afford because the escalator had been going up so quickly for so long that it seemed like a reasonable bet."

"But when the mortgage meltdown pieces are written or broadcast, the lead is inevitably someone who is about to lose his or her house, with not so much as a nod toward the notion that these people might have overreached or bears any responsibility at all for their financial plight."

"I'm not unsympathetic. And there's plenty of blame to go around. But we shouldn't let homebuyers completely off the hook just because it makes for a better narrative."