Some housing bubble news from Wall Street and Washington. Associated Press, "Sales of existing homes fell in 41 states during the April-June quarter while home prices were down in one-third of the metropolitan areas surveyed, a real estate trade group reported Wednesday. The new figures from the National Association of Realtors underscored the severity of the current housing slump, the worst downturn in 16 years."

"The states suffering the biggest drop in sales in the second quarter, compared to the same period a year ago, were Florida, down 41.3 percent, and Nevada, down 37.5 percent. Other states with big declines were Arizona, down 23.4 percent; Tennessee, down 21.5 percent; Maryland, down 21.1 percent, and California, down 19.8 percent."

"'Recent mortgage disruptions will hold back sales temporarily, but the fundamental momentum clearly suggests stabilizing price trends in many local markets,' said Lawrence Yun, senior economist for the Realtors."

"Shares of Dominion Homes Inc., which sells homes and offers mortgage financing services, dropped to a new year low Wednesday after the company reported a wider second-quarter loss. Revenue, meanwhile, fell 49 percent from the second quarter of 2006. The company said the declining revenue was mainly due to fewer home deliveries and lower average delivery prices."

"'While our results are disappointing, they are not surprising given the sustained national housing slump,' said CEO Douglas G. Borror. 'Our 2007 planning anticipated that the housing downturn in our markets was reaching its final stages. We now see no sign of recovery before mid-2008,' he added."

"Condominium builder WCI Communities Inc. on Tuesday raised the amount of the impairment charges it expects to record in the second quarter. WCI also postponed its second-quarter earnings release, scheduled for Thursday, to Aug. 22."

"'The later reporting date will allow WCI to complete its review of real estate inventories and other assets for possible impairment charges,' the company said in a statement."

From Reuters. "Countrywide Financial Corp shares fell on Wednesday after the largest U.S. mortgage lender was downgraded to by a Merrill Lynch & Co. analyst, who said bankruptcy may be possible if liquidity worsens."

"'If enough financial pressure is placed on Countrywide, or if the market loses confidence in its ability to function properly, then the model can break, leading to an effective insolvency,' wrote analyst Kenneth Bruce, according to a person who has seen the report. 'If liquidations occur in a weak market, then it is possible for Countrywide to go bankrupt.'"

From MarketWatch. "Real estate investment trust Impac Mortgage Holdings Inc. said it has suspended funding on so-called Alt-A loans due to liquidity problems in the mortgage markets."

"'In light of the continued and widely publicized volatility in the secondary and securitization markets, we have suspended funding on loans previously referred to as Alt-A loans and currently do not have any plans to originate these types of loans in the near future,' the company said in a press release."

"'During the second quarter, the secondary and securitization mortgage markets have deteriorated, become more unpredictable and volatile, making it more difficult to sell loans and securities to investors,' the company said in a statement."

"'In addition, because housing prices have declined, default and credit losses have increased; investors are requiring higher returns, reducing the prices of mortgage loans,' Impac said."

"An affiliate of powerful leveraged buyout firm Kohlberg Kravis Roberts & Co. said on Wednesday it will lose about $40 million from selling $5.1 billion in residential mortgages and warned an additional $200 million hit could be coming."

"KKR Financial blamed the estimated $40 million loss on 'unprecedented disruptions' in the residential mortgage market, which have reverberated from the United States to banks in Europe and Asia."

From Bloomberg. "The U.S. subprime mortgage crisis will cost credit investors about $150 billion in losses worldwide, according to Calyon, the investment banking unit of Credit Agricole SA, France's third-largest bank by market value. Foreclosures may reach 20 percent of the $1.3 trillion of subprime mortgages outstanding, according to a research note today. Assuming investors can recoup half their investments, losses would be $130 billion, it said."

"A further $20 billion could also be lost from the $1 trillion of outstanding Alt-A mortgages offered to borrowers with better credit who fell just short of typical standards."

The Wall Street Journal. "The seizing up of some debt markets because of the subprime-mortgage shakeout has left some investment funds wondering how to value their holdings."

"Last week, France's BNP Paribas SA said it would stop the flow of money into and out of three of its investment funds because it couldn't 'fairly' value securities in the funds."

"When the bank, for example, recently tried to sell about $60 million of bonds backed by U.S. mortgages, it couldn't find any buyers. Among the brokers it called, 'some of them weren't even answering the phone,' says Alain Papiasse, head of BNP's asset-management and services division."

"The oft-repeated problem is that the funds, and even some companies, can't get prices for many debt securities and derivatives with direct or indirect links to loans made to homeowners with spotty credit histories. Given that, they ask, how are they supposed to mark holdings to market when there is no market?"

"One answer is that everything has a price, if it is low enough. That is tough for many managers to swallow if they think the long-term value of a holding isn't impaired. Trading at such a price is also a difficult prospect if a manager wants to avoid selling into a distressed market."

"But if there are no buyers to be found, there may be an even worse alternative. 'Then the price is zero,' says Jack Ciesielski, editor of the Analyst's Accounting Observer newsletter. 'If there's a bid out there, then there's a price. Take your pick.'"

"Marking holdings to zero would be an extreme move. BNP's Mr. Papiasse says the problem was that there simply was no market or price for the assets."

"To see how funds have marked down their holdings, consider Regions Morgan Keegan Select High Income Fund. It invested $13.5 million in one bond based on a series of mortgage-backed securities issued in 2005 called Terwin Mortgage Trust. By the end of March, the fund listed the bond's value as $5.9 million, according to its most recent portfolio report to regulators."

"The value of new subprime securities coming onto the market plummeted 73% in July to $7.1 billion from $25.9 billion in June, according to FBR."

"Moody's Investors Service and Standard & Poor's, the arbiters of creditworthiness, are losing their credibility in the fastest growing part of the bond market."

"The New York-based ratings firms last month gave a new breed of credit derivatives triple-A ratings, indicating they were as safe as U.S. Treasuries. Now, investors are being offered as little as 70 cents on the dollar for the constant proportion debt obligations."

"Ratings firms 'used to be seen as good, objective folks dressed in white, who you could count on to give reliable opinions,' said Christopher Whalen, an analyst at a research firm that writes software for auditors to determine if banks are accurately valuing their assets. 'But when they got involved in structuring and pricing these deals, I think they crossed the line. They have lost a lot of credibility.'"

"Bonds backed by mortgages to people with poor credit fell by more than 50 cents on the dollar in June before the companies started to slash their ratings. The firms say they determine the risk of default rather than prices."

"Frankie Van Cleave says she has paid all her bills on time for more than three decades. But neither solid credit nor her track record running a number of businesses is sparing the 70-year-old from the turmoil in the home-mortgage market."

"Several mortgage brokers had courted her to refinance a $1 million adjustable-rate mortgage she currently carries on her home. But most of them 'dropped me like a hot potato' last week after two appraisals came in below $900,000, she says."

"Her bank of three decades won't help her after her monthly mortgage payments recently ballooned to nearly $8,200, so Ms. Van Cleave is working 80 hours a week as a technical writer to make ends meet."

"'A good credit record doesn't count for anything now,' Ms. Van Cleave says of her futile refinancing effort. 'If you don't have assets, forget it.'"

"'We thought the dust was going to settle, but instead, it just blew up,' says Mitchell Reiner, president of Mortgage Associates, a Los Angeles-based lender that does business in 48 states. 'Everyone is being affected.'"

"'Banks want to see that you have a vested interest in the property,' says mortgage broker Mark Cohen of the Cohen Financial Group in Beverly Hills, Calif. 'Everybody thought the damage would be contained to the subprime market but it has spread to A-paper [products]."

"Ms. Van Cleave doesn't have cash for a refinancing down payment, and she faces a problem hitting more consumers: Appraisers say her home is worth less than her current $1 million mortgage."

"Ms. Van Cleave concedes she took a risk, borrowing close to the appraised value of her home two years ago, at the market's peak, to help fund a start-up company that sells a patented fishing-rod holder. She opted for a two-year ARM, with a piggyback mortgage at nearly 12%, and planned to refinance."

"But the start-up hasn't taken off, and even as she saw the credit market tightening, she couldn't afford the penalty to refinance her loans early...Ms. Van Cleave rejects the first two appraisals, saying that one report has factual errors and neither makes fair comparisons with other homes. She believes she is a victim of appraisers who are being pressured by lenders and are 'so afraid they're going to lose business or have their license taken away.'"

"To Washington state appraiser Bill Hanson, the shift is dramatic. Lenders are demanding more comparable home prices and 'asking for unrelated information, such as permit numbers for remodeling work,' he says. 'Before they would ask: 'Is the home still there and does the roof leak?'"

From Marketplace. "Kai Ryssdal: Steven Miller, this might sound like a really basic question, but how can it be that they can't value the assets they have? Miller: Normally...you'd look at where things are trading on an exchange in an actively bid market. But in these markets for structured finance assets...you often have to look beyond the simple price and go to a model, or some sort of complicated analytical tool, to be able to value them."

"Ryssdal: Because of the credit crunch or liquidity squeeze, or whatever you want to call it, not many people, not many groups are bringing new mortgages to the market. So you guys have no way of figuring out what they should actually be worth in a functioning market."

"Miller: That's right."

"You didn't have to be Warren Buffet to know that giving people loans for houses they couldn't afford might come back to bite the economy. And, as Lisa Napoli reports, we all really should have known better this time around."

"The pundits had the same 20-20 vision back in March of the year 2000, after the tech bubble started to burst. The get-rich quick mentality that has fueled the housing run-up is not terribly different from the dot-com fever at the turn of the century."

"Financial columnist and author Carolyn Baum says that's created a perfect climate for run-ups. Carolyn Baum: 'Both bubbles were a response to periods of low interest rates. Bubbles do not end well. They don't. Whether it's tulip bulbs, real estate, they don't end well.'"

"Greed followed by fear. Economists say the markets are propelled by this cycle. But this time, the bust of the bubble could have a wider and more devastating economic impact. After all, houses are very different from dot-com companies or tech stocks."

"Steve Pearlstein of the Washington Post: 'That was just, you know, a lot of money that never was really there just disappeared, it evaporated. But that was investment money. This is about where people live, literally.'"

"Or in a growing number of cases in this housing market, about where they used to live."