Some housing bubble news from Wall Street and Washington. CNN Money, "Home values and housing sales will take an even bigger hit than previously forecast and will not recover to their earlier levels throughout all of 2008, at least, according to the latest economic outlook from the National Association of Realtors released Tuesday. The group has continually been revising price estimates lower...As recently as the March economic forecast, it had still been looking for an annual gain of 1.2 percent in existing home prices."

"The group is now forecasting an 8.6 percentage drop in the pace of existing home sales this year, which is not only worse than its previous estimate of a 6.8 percent decline, but also would top the 8.5 percent drop seen in 2006."

"New home sales volume is expected to drop even more sharply, posting a 23.8 percent drop this year, and another 7.4 percent drop in 2008."

From Bloomberg. "'There's been an unusual hit to home sales, starting in March when subprime problems emerged and more recently when problems spread to jumbo loans,' Lawrence Yun, an economist for the group, said in the forecast."

"New home sales won't reach a bottom until the first quarter of 2008, the organization said. A month ago, the Realtors said the low point would be at the end of this year."

"'The Realtors keep splicing a little more off their outlook to make it more gloomy, but they are still more optimistic than we are,' said Lehman Brothers economist Michelle Meyer in an interview. 'The data from the mortgage and credit markets is all pretty dismal.'"

"'Home prices need to come back down to more affordable levels so that people can take that inventory off the market,' said said Alex Barron, who follows homebuilders for Agency Trading Group Inc. 'Everything I see points to lower prices, much lower prices.'"

The New York Post. "Countrywide Financial Corp. is putting together another multi-billion dollar bailout plan as the nation's largest home lender continues to struggle amid the global credit crunch and declines in the housing market, The Post has learned."

"'Countrywide is in desperate need of cash right now to continue funding mortgages and the credit markets are still largely closed to them,' said one source familiar with the company."

The Seattle Times Newswires. "Washington Mutual CEO Kerry Killinger said WaMu has the financial strength to add billions of dollars in home loans to its balance sheet, even while setting aside an extra half-billion dollars for old loans gone bad."

"Frederick Cannon, who follows WaMu, wrote in a note to clients last week that the company ran the risk of picking up more low-quality loans than anticipated if it expands too fast."

"'The market is forcing you to be disciplined,' Bradshaw said. 'If you're out booking loans that aren't 80 percent conforming loans, you aren't going to be able to sell them.'"

From Reuters. "A global credit crunch, fueled by an economic slowdown and U.S. subprime mortgage defaults, will remain 'quite ugly' possibly until March, the head of Canada's second largest bank cautioned on Tuesday."

"'I think it is going to be quite ugly in the next few months. I think there are a lot of shoes to drop,' said Ed Clark, CEO of Toronto Dominion Bank."

"Clark said the core of the problem was that many investors didn't understand what was in the investments they made. 'I think the market sits there and says 'I didn't understand when I was buying that German bank that I was buying California risk,' he said."

"'I think it's going to be an ugly fourth quarter here and the market will reel back. I would counsel people that this is good because people did stupid things ... You've got to cleanse this out,' Clark said."

The Chicago Tribune. "The problems in the housing market were supposed to stay there. Or at least that's what most of Wall Street was espousing until July. Yet, in the last eight weeks, it has become clear that their analysis was wrong."

"Investors would like to sell their holdings and escape, but no one wants these securities at full price, so they are plunging in value. Institutions holding the nearly worthless securities 'are keeping mum,' which is part of the problem, said Brian Bethune, an economist at Global Insight."

"Merrill Lynch economist David Rosenberg said no one knows how big the losses are going to be. 'Nobody knows which banks or funds are sitting on losses, and, as a result, lenders are refusing to lend,' he said."

The Washington Post. "When something goes badly on Wall Street, people wind up in court. And the subprime mortgage mess is no exception. A consortium of investors is going after the collapsed Bear Stearns hedge funds."

"'We will look at those responsible for any potential fraud, by company management, auditors, lawyers, credit-rating agencies or others,' said Walter Ricciardi, a deputy enforcement director at the SEC. And this is just the beginning, say legal experts tracking the steady stream of lawsuits."

"Russell Sherman, spokesman for Bear Stearns, said the allegations are 'unjustified and without merit. The accredited, high-net-worth investors in the fund were made very aware that this was a high-risk, speculative investment vehicle.'"

The Dallas Morning News. "Don't look for a quick turnaround in the housing market downturn. 'We had thought we would hit bottom the second quarter of this year,' Amy Crews Cutts, an economist with lending giant Freddie Mac, told mortgage industry members. 'We have now pushed that out to the second quarter of next year.'"

"And even then, there may not be a sharp rebound. 'We are in this for a while,' Ms. Cutts told an audience."

"Ms. Cutts said some of the subprime borrowers could have qualified for conventional loans but were persuaded to take nontraditional mortgages. Now, thousands of those homes are winding up in foreclosure."

"'Foreclosures create a vicious cycle,' Ms. Cutts said. 'They can't sell the home so they end up in foreclosure. Then the foreclosure sales depress prices in the area.'"

"'It's hard to go get a mortgage now – especially a jumbo or subprime loan,' Ms. Cutts said. For all mortgages, lenders are requiring more up-front money and better credit. 'The days of $500 down payments are over – nobody is going to touch those,' Ms. Cutts said."

"Some 57 percent of mortgage broker customers with adjustable-rate loans were unable to refinance into a new loan to avoid higher monthly payments in August, a national survey reported on Tuesday."

"The poll of 1,744 brokers in the last week of August found...prime borrowers were impeded by appraisals and high loan-to-value ratios."

The Columbus Dispatch. "To stem the rising tide of foreclosures in Ohio, the state should urge mortgage companies to modify loans rather than foreclose on them, a task force said yesterday."

"Michael Van Buskirk, CEO of the Ohio Bankers League, said that while his organization approved of much of the report, the emphasis to 'coerce lenders to rewrite existing loans' was outside the state's authority and could 'lead to the drying up of mortgage funding in Ohio.'"

"'We're not objecting to the concept, but some of the recommendations are phrased so vaguely that it could prevent (consumers) from being able to refinance or obtain a new mortgage,' Buskirk said."

From Dow Jones Newswires, "Regulators want banks to help subprime mortgage borrowers avert disaster by easing their loan terms, but for bond investors, the cure may not be better than the disease."

"Changing the terms of these home loans after they have been packaged into bonds leaves investors scrambling to adjust to new terms they hadn't expected at the outset. That type of uncertainty, the concern is, could make an already unpopular asset class even more unpopular."

"It's not clear, for example, that modifying the terms of a loan will ultimately bail out many struggling homeowners over the long term."

"'Even in the best of times, [many of] these modifications just served to push off foreclosures for a later period when home prices were increasing,' said James Grady, a structured finance portfolio manager for Deutsche Asset Management in New York. 'Now with home prices declining, you're arguably just increasing your loss severity.'"

"By far the biggest objection investors have to loan modifications, though, is that if borrowers, for example, are suddenly paying a lower interest rate, then investors don't get the cash flows they expected when they bought the bonds."

"'That's coming out of someone's pocket. That's not a free ride,' Grady said. 'You may find investors no longer willing to buy future or similar securities on the same terms' as they did earlier, he said."

"On top of that, investors in bonds backed by loans that end up being modified also tend to find themselves having to hold those securities for far longer than originally expected."

"That's because borrowers who might have refinanced into new loans had the terms of their loans remained the same choose instead to take the modified rate and keep their loans longer. And bondholders, as a result, don't get cash back early from as many loans as they had anticipated."

"Suddenly, a bond that investors had expected to hold for three or four years now lasts 10 or 11 years, said Walter Schmidt, manager of securitized products strategy for FTN Financial. That not only upsets investors' cash-flow calculations, 'you're extending the time over which you have credit risk' to bear as an investor, he said."

"The bottom line is market participants don't seem to think easing loan terms will solve the subprime mortgage bond sector's troubles."

From Origination News. "The president of the National Association of Mortgage Brokers declared the industry to be 'at war' against a number of parties."

"George Hanzimanolis, speaking at the annual convention of the California Association of Mortgage Brokers here, said, 'We are at war against the legislators who want to legislate us out of business.'"

"The industry is also at war against the media who put the blame for the current mortgage crisis solely on mortgage brokers, against regulators who want to promulgate new rules, which only affect mortgage brokers and even some consumer who did not tell the mortgage originator the whole truth when they applied for a loan."

"Echoing the themes of the other speakers, Rep. Gary Miller, said in talking with people in the lobby, 'I thought you were on the deck on the Titanic.' But the situation is not that bad."

"A former developer, he remembered past recessions, including the early 1980s. 'This time it took the press two years to get a decent recession going,' Rep. Miller said."

"Mortgage brokers are being blamed for abusive practices, Rep. Miller said, but the truth is many mortgage bankers need to be looked at."

"Keeping alive jitters that the Federal Reserve won't cut interest rates as much as hoped for, several bank presidents in speeches Monday said that the Fed's job is not to protect risk takers."

"San Francisco Fed President Janet Yellen said that while market turmoil has the potential to hurt the economy, rate policy should not be used to shield investors from losses."

"'Yellen said the goals of price stability and full employment must be the 'unswerving focus' of policymakers. 'Monetary policy should not be used to shield investors from losses.'"

"'I do not believe the Federal Reserve's job is to protect specific risk takers who failed to protect themselves from potential downside wounds,' said Dallas Federal Reserve Bank President Richard Fisher. 'In my humble opinion, the standard tools of monetary policy are insufficient, by themselves, to deal with the subprime market fallout,' he added."

"'I set aside the passions of the moment and the conventional wisdom in the markets and keep a steady focus on the Fed's mission,' he said. 'Conducting monetary policy is not a popularity contest.'"

"The booming housing market is one of the 'most unbridled failures' of government policy, a leading economist has said."

"Roger Bootle, managing director of Capital Economics, said 'extraordinary' house price growth in the UK in recent years has had severe consequences for the economy and consumers."

"Bootle said: 'Most people see the UK housing market as a story of great success: I don't. On the contrary, I see it as one of the UK's most unbridled failures.'"

"He said the rise in property prices had brought 'misery' to the masses, and that the blame lay with government of all political parties for sitting on huge swathes of the country's undeveloped land."

"'I wish the government would forget all the gimmicks,' he told the delegates. 'The central issue is quite clear: it's getting to grips with the availability of land for building and ensuring that the rate of building moves up quite sharply after that.'"

"Bootle concluded: 'My question and challenge for the government is this: are you going to have the political will to raise the availability of land for building even at a time when house prices are pretty soggy?'"

"Mark Clare, CEO of Barratt Homes, said the Barker Review, which was published last year, found that most people thought more than 50 percent of land in the UK had been developed, compared to the reality of just 13 percent."