Some housing bubble news from Wall Street and Washington. The New York Times, "Three of the nation’s largest banks, working together at the behest of the Treasury Department, announced this morning that they were creating a large fund to serve as a buyer of bonds and other debt at a time when many investors are avoiding them. Citigroup, Bank of America and JPMorgan Chase will create a fund, called a conduit, that will be able to buy around $75 billion to $100 billion in highly rated bonds and other debt from structured investment vehicles, or SIVs."

"Those vehicles own mortgage-backed bonds and other securities and have had trouble obtaining financing since early August, when the credit markets froze up. Bank and government officials are concerned that if these vehicles are forced to dump billions of dollars worth of debt in the coming weeks, it could cause a repeat of the crisis that rattled markets in August and sent the cost of mortgages and other loans soaring."

"To maintain its credibility with investors from whom it would raising money, the conduit will not buy any bonds that are tied to mortgages made to people with spotty, or subprime, credit histories."

"Each bank will put up an unspecified amount of its own capital into the fund, and other banks from around the world are expected to join the consortium in the coming weeks. The conduit will raise most of its money by selling commercial paper."

"But it remains unclear how officials will determine the price of some bonds that have not been actively traded since August, because the difference between what buyers are willing to pay and what sellers want has widened significantly."

"'For me, this is more of a P.R. blitz,' said analyst Christian Stracke. The banks are 'saying, it’s not just that we are doing this on an ad hoc, individual basis. Rather, we have a plan and consortium in cooperation with Treasury, which gives it a veneer of respectability.'"

From Bloomberg. "The group formed by Citigroup, Bank of America and JPMorgan will be known as the Master Liquidity Enhancement Conduit, or M-LEC."

"'This is mostly symbolic,' said Christian Stracke, strategist at a New York bond research firm. 'The banks were going to need to inject more liquidity into the SIVs anyway, so the public cooperation just makes the bailouts of SIVs seem more orderly.'"

From MarketWatch. "There won't be any public money involved in the fund, said Robert Steel, the Treasury's deputy undersecretary for domestic finance, in an interview on Bloomberg TV."

"'The goal here is to help the markets start to work,' Steel said. ''This is a temporary solution in order to transition the market on to more sound footing."

"The announcement of the fund came as Citigroup reported its third-quarter net profit fell by 57%, reflecting accounting for previously announced write-downs for bad loans and other credit issues. "

From Reuters. "Citigroup Inc said on Monday third-quarter profit fell 57 percent as losses mounted from subprime and leveraged loans, fixed-income trading and its U.S. consumer business."

"The earnings decline was the largest in three years for the No. 1 U.S. bank, and reflected $6.5 billion of pre-tax losses and writedowns, $600 million more than previously estimated."

"'This quarter's performance was well below our expectations, and frankly surprising,' CEO Charles Prince said on a conference call."

"Citigroup reported pre-tax writedowns of $1.35 billion for leveraged loans, $1.56 billion for subprime mortgages, and $636 million from fixed income trading."

"It also reported a $2.98 billion increase in credit costs, including a $780 million increase in net credit losses and a $2.2 billion charge to boost reserves for bad loans. Delinquencies on second mortgages nearly doubled last quarter."

"CFO Gary Crittenden said Citigroup ended September with exposure to $57 billion of leveraged loans."

"Crittenden said U.S. consumer credit conditions 'will continue to deteriorate' this quarter. He also said Citigroup faces $10 billion of mortgages whose rates will reset by the end of 2008, though 90 percent of these are higher-quality loans."

"Nomura Holdings, Japan's largest brokerage, on Monday said it will quit the U.S. residential mortgage-backed securities market and cut one-fourth of its U.S. workforce."

The Wall Street Journal. "Nomura said it would take a loss of $621 million on write-downs of residential mortgages and an additional charge of about $85 million for restructuring the business. That will swing Nomura to a pretax loss of as much as $510 million in the quarter ended Sept. 30, 2007."

"'This is extremely regrettable,' Nomura CEO Nobuyuki Koga said at a press briefing in Tokyo today. 'The pace of the collapse in the U.S. residential mortgage-backed securities market was quicker than we expected.'"

"The world's largest banks and securities firms have reported credit and market losses of at least $21 billion after defaults on subprime mortgages contaminated securities backed by home loans and other types of debt."

"'We found out that there was a limit to the measures that could be taken to cope with changes in the U.S. without having a thorough understanding of the market,' Koga, said."

The Washington Post. "Long before the mortgage market fell apart this summer, Friedman Billings Ramsey, Washington's largest investment bank, saw the trouble ahead."

"In early 2005, the company invested an eye-catching half-billion dollars, a third of what it had available, in the subprime mortgage business, even buying a mortgage lender. The company bet big that these high-risk loans to people with poor credit would return impressive profits."

"But by the end of the year, FBR realized that it had miscalculated. The Federal Reserve kept raising short-term rates, and the firm suddenly was paying more to borrow money than it received in interest on its loans."

"FBR sold some investments to stem the losses but didn't move aggressively enough. Eventually, 80 percent of its mortgage-related investment would be lost and the company's stock price would spiral downward."

"'It was brutal, extraordinarily difficult. There's no other way to describe it,' said CEO Eric Billings, of the firm's series of investments in subprime mortgage lenders. 'Our timing was very bad.'"

The Dow Jones Newswires. "Months before Merrill Lynch & Co. preannounced a third-quarter loss and a writedown of $5 billion last week, it had been assuring investors and the press that its portfolios of mortgages and asset-backed securities were well-hedged and profitable."

"Investors are now questioning why Merrill would dissemble if the truth was going to come out weeks later. Similar questions could be asked about Citigroup Inc. and UBS AG, which each wrote off fixed-income assets of $1 billion or more months after sending out soothing words about their franchises. Bear Stearns Cos. whose mortgage woes triggered the summer credit crisis, similarly offered assurances that its mortgage portfolios were solid."

"'They didn't understand or someone was willfully deceiving them,' says Arthur Levitt, a former chairman of the Securities and Exchange Commission. 'I don't think either is a very good excuse.'"

"'This market is characterized by an overwhelming number of synthetic and derivative products that are not adequately understood by people who build them and by people who buy them,' Levitt said. 'Investors in companies dealing in these opaque products probably bear risks that they never knew they were buying into.'"

"Autumn in New England may feel more like a winter of discontent for the 4,000 home lending specialists heading to Boston next week for an industry jamboree set amid the worst housing slump in a generation."

"The Mortgage Bankers Association's annual convention, a gathering ordinarily known for its pomp, parties and star sightings, this year will reflect the belt-tightening across a business under siege."

"As of Thursday the MBA had registered just 38 Countrywide employees for the Oct. 14-17 meeting, down from 61 last year and 63 at the height of the housing boom in 2005. Wells Fargo & Co, JPMorgan Chase & Co's Chase Home Mortgage and WaMu also sharply trimmed registrants."

"Many previous conference-goers are now out of work, with 97,509 housing-related jobs slashed in the past year, according to Challenger, Gray & Christmas Inc."

"The bottom line: Mortgage bankers lost $50 per loan in 2006, compared with $258 profit in 2005, according to the MBA."

"Seismic shifts of power in the industry are still unfolding, with some lenders still nursing their wounds and others moving forward.'We're at the beginning of an 18-month period that's going to be very bumpy,' said Alfred DelliBovi, president of the Federal Home Loan Bank of New York and a former HUD official."

"Larry Goldstone, co-founder of jumbo lender Thornburg Mortgage, added: 'There seems to be a lot of uncertainty about exactly what people want to do' in the near-term."

National Mortgage News. "Countrywide Financial Corp. has plenty to worry about these days: it's facing a second-quarter loss that could top $2.5 billion, not to mention tons of negative publicity concerning its loss mitigation efforts on delinquent loans."

"But now it may have a new worry. Loan brokers that use the company for table funding say its service is getting worse. One broker told us, 'Ever since they closed local offices in Fresno their Sacramento office has no clue of what the hell is going on. I never get any of my calls returned and my clients tell me: 'Why would I want to put them into loan with Countrywide?'"