Some housing bubble news from Wall Street and Washington. Chicago Tribune, "Neumann Homes, one of Chicago's largest home-building companies, said Monday that it plans to file for bankruptcy. Neumann, based in Warrenville, said it closed all of its sales, production and customer service offices. Neumann said the downturn in Michigan had hurt his company significantly, adding that it had lost $60 million in the last two years in the Detroit market alone."

"'In the process of trying to make [that market] work, we saw property values on lots alone go from over $100,000 to $30,000' since late 2004, said CEO Ken Neumann. 'Homes that would have gone for $400,000 sold for $250,000.'"

"As for the homes under contract but not under way, Neumann said the company placed those customers' deposits in escrow and will seek court approval to cancel their contracts and return those funds."

"'As we saw our lenders start to go through the turbulence in the financial markets over the last several months, we started having serious concerns in September and held off on releasing other homes for construction,' he said."

The Sun Times. "'The market downturn in the Chicago and Denver housing markets [is] now in excess of 50 percent, with home prices dropping from 10 percent to 25 percent in some sub-market,' Kenneth Neumann commented in the fax. 'Even after the significant help we have received from our lenders this year, the company can no longer weather this storm.'"

The Daily Herald. "'They were too aggressive at a time when we knew the boom of '03 to '05 couldn't be sustained,' said Tracy Cross of Tracy Cross & Associates."

"Of its current inventory of 5,485 single and multi-family homes in the Chicago area, 2,619 have been sold, according to Tracy Cross. Its Chicago area inventory reached 5 years worth of unsold homes, according to Cross. Neumann Homes has 46 developments active in 18 Chicago area towns, according to Cross."

"As for Neumann customers with complaints or partially built homes, Cross has little advice. 'I'm in the industry and if I was (in that spot), I wouldn't know what to do,' Cross said. 'Call my lawyer of course.'"

From Reuters. "Countrywide Financial Corp, the largest U.S. mortgage lender, on Tuesday offered to refinance or restructure up to $16 billion of adjustable-rate mortgages through the end of 2008."

"Like many rivals, Countrywide has faced criticism that it fed the housing slump by putting Americans into mortgages they could not refinance once home prices stopped rising. Congress is considering legislation to require lenders to put borrowers in loans they can afford, rather than loans that are more profitable, and to let homeowners sue Wall Street banks that package loans that should never have been made into securities."

"'Unprecedented times call for unprecedented remedies,' Chief Operating Officer David Sambol said in a statement. 'We are determined to assist borrowers who have the willingness and wherewithal to remain in their homes, but need a little help.'"

"Countrywide made $468.2 billion of mortgage loans in 2006, including $40.6 billion of 'nonprime' mortgages."

"The company is now emphasizing smaller, higher-quality loans. It stopped making most subprime mortgages, and adjustable-rate loan fundings slid 76 percent in September. Overall mortgage volume that month fell 44 percent."

"It also services $1.46 trillion of mortgages, and said that as of June 30, payments were at least 30 days late on one in five nonprime loans it serviced."

From CNN Money. "Countrywide is expected to announce a deep loss when it reports results Friday, along with a sharp drop in its business levels in the third quarter. It has announced it will have to take charges of between $125 million and $150 million to lay off staff and close offices."

From USA Today. "Chetera Miller, a credit counselor for Neighborhood Housing Services of Chicago, has noticed that lenders are becoming more willing to cut deals with delinquent borrowers. There's just one problem: That's only about half the number of financially strapped clients she's working with."

"Larry Litton Jr., head of Litton Loan Servicing, restructured 2,000 loans last month to help subprime borrowers. 'We are modifying more loans than we ever have, and despite that, the foreclosure volume continues to increase,' he said."

"Normally, his company, which collects mortgage payments and handles late payments, helps about 60% of homeowners avoid foreclosure after they fall behind on their subprime mortgages. But with tougher lending standards, falling home prices in many areas and a lot of poorly underwritten loans, he said he can modify only about 45% of the bad loans he has on his books."

"The housing crisis, Litton says, 'is bigger than what people had originally thought. Youre probably looking at a peak in these defaults in the third or fourth quarter of 2008.'"

"Katrina Vizinau of Community Housing Development of North Richmond, Calif., says about 90% of the people who call her group for help aren't able to refinance, because lenders say they have little or no equity in their homes. Further, many of her clients are late on their mortgage payments, meaning their credit scores have taken a hit."

"She sees some older borrowers who were persuaded to refinance to tap into home equity. 'They've used all the cash that they took out. They're just stuck, and they're just waiting. … They can't refinance because they're on a fixed income,' she says."

"Sheila Bair, chair of the Federal Deposit Insurance Corp, wants lenders to take a more sweeping approach, instead of painstakingly reassessing each individual mortgage. Some loan servicers, including Litton Loan Servicing, say Bair's plan would expose them to lawsuits from mortgage investors if the servicers reduce the interest rates on loans that aren't at serious risk of default."

"'The loan servicer has to walk the line of having a fiduciary duty to the investor and, at the same time, help homeowners stay in their house,' Litton says. 'We are required to look at each loan individually.'"

"Countrywide's CEO of Loan Administration Steve Bailey says, many people forget that job loss or a reduction in income, followed by illness and divorce, are the most common reasons why people default on mortgages."

"But Michael Kanef of Moody's says the increase in payment puts more stress on the borrower and raises the risk that the borrower will default in the future."

"Bailey counters: 'If the primary driver of foreclosures is a significant reduction of income, and property values do not continue to appreciate, that is going to make foreclosures continue to rise, and there really isn't anything to fix that.'"

The Wall Street Journal. "Some lenders are now making it tougher for borrowers in softening housing markets to get a mortgage. The policy is designed to keep lenders from holding the bag if home prices in those markets continue to fall. But the tighter standards, by discouraging home buyers, could add to downward pressure on home values in already weak markets."

"Lenders such as J.P. Morgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. are cutting the maximum amount some borrowers can finance in counties or states where home prices are declining. Mortgage companies are also taking a tougher look at appraisals in housing markets with falling prices."

"Among the areas being hit by the tougher standards are parts of California, Florida and Michigan."

"With house prices falling, lenders are looking to control their risk, says Doug Duncan, chief economist of the Mortgage Bankers Association. But 'there's a little bit of a self-fulfilling prophecy,' he adds. 'If you tighten standards, fewer people can qualify [for a mortgage]. Effective demand is going to be lower, resulting in lower house prices.'"

"Wells Fargo has expanded a program begun earlier this year that tightened standards in certain 'declining' markets. The list includes more than 50 counties in seven states, including parts of California, Florida and Michigan. It also cut by five points maximum financing in more than 125 other counties in a total of 22 states and the District of Columbia. A spokesman says the company is monitoring credit conditions on a 'day to day' basis."

"Bank of America Corp. says it is asking for more detailed appraisals in markets with falling prices. In many cases, appraisers are being told to drive by the property to get a better estimate of its value instead of just running information about the home through a computer model."

"In October, SunTrust Banks Inc. published a list of roughly 50 metro areas in 16 states and the District of Columbia that it designated as 'declining markets.' The declining markets list 'was issued to make sure that appraisers in those markets are taking that into account and explaining how it figures into their valuation,' a SunTrust spokesman says."

"'The lenders are being way more conservative than they were a year or two ago,' says John Rooney, an appraiser in Phoenix. In some cases it can be tough to find enough comparable properties that meet lenders' criteria, particularly for higher-end homes, he says."

"A county in Washington state emerged as the most recent casualty from the financial-market turmoil caused by complex securities known as SIVs when Standard & Poor's Corp. said yesterday it may downgrade debt of King County because of investments in debt issued by SIVs."

"King County invested in a risky form of SIVs known as SIV-lites that typically invest more than SIVs in securities tied to residential-mortgage securities, including subprime loans."

"Ken Guy, King County's finance director, said county officials saw the SIV-issued commercial paper as a safe investment that would provide slightly higher yields than U.S. government bonds, and relied on the high ratings given the commercial-paper investment vehicles by S&P and Moody's. 'That is the frustrating aspect about all this: you have these highly rated investments that have been downgraded simply overnight,' he said."

From MarketWatch. "The world's top banking overseer has reservations about the $100 billion rescue package planned by U.S. banks."

"Nout Wellink, the chairman of the Basel Committee on Banking Supervision who is also president of the Dutch central bank and a member of the European Central Bank's Governing Council, discussed the recent credit-market turmoil with Joellen Perry of The Wall Street Journal and Damian Paletta of Dow Jones Newswires. WSJ/Dow Jones: What are your thoughts about this new superconduit that's been proposed?"

"Wellink: For the time being, I have mixed feelings. ...What is exactly the idea behind it? Is it a way of escaping your fate? Because if there is no market, at a certain price, then you're confronted with losses. Take these losses. As long as it's meant to create an orderly process, okay. But if these artificial elements are involved, then immediately the supervisor and the central banker uses the phrase moral hazard."

"European banks are not the least interested to participate in this project. This is an American initiative, and it's the banks who created, themselves, these mortgage problems. So the European banks, they look from a certain distance."

From Bloomberg. "Ivy Zelman's view of the U.S. housing market is gloomy, but it's probably the most realistic. A veteran Wall Street analyst, Zelman, CEO of the research firm Zelman & Associates, says it's unlikely the U.S. housing market will recover before 2009."

"'I've never seen the market as bad as this,' Zelman said. 'And it could get worse. The home-price decline could range from 16 percent to 22 percent.'"

"'These are the worst inventories we've seen as a nation,' she says. Zelman's words carry some weight because she was one of the few major Wall Street analysts to warn of a housing decline months before it began late last year."

"She was alarmed that home prices far outpaced personal-income increases during the boom, which is how the economic disconnect began. A bubble created artificially high demand that had to deflate sometime."

"Meanwhile, builders are stuck with thousands of new homes they can't sell, and potential buyers are canceling in droves or are unable to get a mortgage."

"'Builders are desperate now and blowing through inventory,' says Zelman of homebuilders who are doing anything they can to sell homes. 'Their revenues are shrinking so fast, they can't keep up.'"

From Businesss Week. "After three decades of stability, the national rate of homeownership suddenly began rising around 1995. The rush to buy homes fueled an enormous surge in housing construction and home prices. Experts differed on the cause of the increase in homeownership, from 64.2% of households in early 1995 to 69.1% in early 2005."

"Surprising new research published by the Federal Reserve Bank of Atlanta concludes that the bulk of the increase was caused by innovations in the mortgage market. Young families with little savings flocked to those loans to buy first homes."

"Trouble is, lenders aren't making many of those loans anymore because default rates on the smaller, second loans have been extremely high. That means that one of the main props of the housing market has been kicked away."

"If the homeownership rate drifts back to where it was in 1995, the outlook for housing construction and home prices could turn out even worse than the pessimistic projections."

"One Wall Street economist who has studied the Atlanta Fed working paper, Jan Hatzius of Goldman Sachs, wrote on Oct. 18 that 'the implications could be dramatic.' Wrote Hatzius: 'Our current forecast calls for a decline in new home sales to a trough level of 650,000 by the first quarter of 2008, which we believe is one of the lowest estimates on Wall Street. However, the simple arithmetic [implied by the Atlanta Fed paper] suggests that this estimate could still prove much too optimistic.'"

"But could the homeownership rate actually decline? Yes. In fact, it already has begun to."