Some housing bubble news from Wall Street and Washington. Bloomberg, "D.R. Horton Inc., the second-largest U.S. homebuilder, said orders in the fiscal fourth quarter plunged to the lowest in almost six years as customers canceled and banks restricted lending. Buyers agreed to purchase 6,374 homes from the Fort Worth, Texas-based company, 39 percent lower than a year earlier. The value of those fell 48 percent to $1.3 billion."

"Customers canceled 48 percent of homes they reserved, up from 38 percent in the previous quarter. 'We expect the housing environment to remain challenging,' said Chairman Donald Horton. 'Buyers continued to approach the home buying decision cautiously.'"

"The five largest homebuilders have reduced the value of their real estate and incurred expenses totaling $4.7 billion in their most recent quarters, in the worst housing slump in 16 years."

The Street.com. "The sharp order drop was disappointing since Horton was facing an easy comparison from a year ago, when orders declined 25% year over year."

"The question now becomes whether the big sales drop came even amid aggressive price cuts. If so, that's bad news for the homebuilding business, since it points to an even larger supply and demand imbalance than most analysts had been projecting."

"Orders came in lower across all of Horton's markets. California was among the worst, with a 58% plunge."

From MarketWatch. "Morgan Stanley analyst Robert Stevenson said D.R. Horton's preliminary results 'underscore the continued decline in housing operating fundamentals and further extends our timetable for stabilization.'"

"He said the nearly 50% cancellation rate for the quarter 'illustrates that the problem is industry-wide and not merely focused on the smaller builders in significant financial trouble.' There are concerns some companies may not have the financial strength the weather the downturn."

"'Given falling home prices and the various mortgage-market issues, we expect cancellation rates to be [at least 40%] for most builders this quarter,' Stevenson wrote. 'Coupled with the level of oversupply and our view that there could be another [10% to 15%] hit to home prices from foreclosures in 2008.'"

"Banc of America Securities analyst Daniel Oppenheim in a report Tuesday said D.R. Horton has been 'extremely aggressive' on price cuts in recent weeks in two speculative markets, Phoenix and Southern California, and is gaining market share."

"'We think Horton's aggressiveness is likely to reset the bar even lower for home prices as other builders react by matching these price cuts, which should trigger significant further impairments,' Oppenheim said."

"Wells Fargo & Co., the biggest bank on the U.S. West Coast, said third-quarter profit rose less than estimated after losses from home equity and consumer loans climbed."

"Chief Financial Officer Howard Atkins said in an interview the weakness will also hurt fourth-quarter results. 'The decline in home prices accelerated' in the third quarter, 'which produced somewhat higher losses than we anticipated,' Atkins said."

"The bank reported net credit losses of $892 million, up 35 percent from a year earlier. About half of the increase stemmed from home equity loans, where lower home prices caused steeper- than-expected losses, Chief Credit Officer Mike Loughlin said."

"Mortgage originations at Wells Fargo dropped 12% from a year earlier to $68 billion. Wells Fargo said that mortgage applications in the pipeline fell 18% to $45 billion."

From Reuters. "Challenges facing homeowners today are so manifold that even lenders' best efforts to stave off foreclosures may never work, according to a major lender and a community group."

"The combination of falling home prices, rising payments on adjustable mortgages and higher unemployment in some regions have created problems so diverse that single solutions, such as widening the Federal Housing Administration's reach, will not be enough, said Mary Coffin, an executive VP for Wells Fargo & Co.'s loan servicing group."

"'You have so many factors happening at once that there are some customers (the industry) cannot help,' Coffin told Reuters at the Mortgage Bankers Association annual meeting here. The industry must be careful about making blanket statements suggesting it will be able to help all borrowers prevent foreclosure, she said."

"Just getting the customer to call is a big frustration for Wells Fargo, which found 30 percent of borrowers it services have contacted the company, she said."

"Options may still not keep people in their homes, according to consumer group NeighborWorks America. Some borrowers who because of falling house prices owe more than their home is worth are able to sell their home to the bank at the appraised value, freeing themselves of the debt, said Douglas Robinson, a spokesman for NeighborWorks."

"'Not everyone can be helped in the way they want,' he said."

"Treasury Secretary Henry Paulson, defending an effort he spearheaded to stabilize credit markets, has 'no interest in bailing out lenders or property speculators,' the New York Times reported on Tuesday."

"Later on Tuesday Paulson will call for new regulations for mortgage lenders, changes in credit-rating agencies' practices and stepped-up oversight by financial regulators, the Times reported."

From CNN Money. "Paulson did not allow borrowers to escape without their share of blame. 'Buying a home today is a complex process, but that in no way excuses home buyers from their obligation for due diligence.'"

The Associated Press. "Paulson also stated, 'When investors are relieved of the cost of bad decisions, they are more likely to repeat their mistakes. I have no interest in bailing out lenders or property speculators.'"

The International Herald Tribune. "At least give Peter Kasch, managing partner of Catalyst Capital, a London real estate firm, credit for his brutal honesty. With a hint of nostalgia, Kasch recalled the heady days when low-cost borrowing and willing investors made European real estate a business in which it was hard to go wrong."

"'A lot of us only had to get out of bed to make money,' Kasch said."

"Like a villain in a Scooby Doo cartoon, the banks behind the new $80 billion bailout fund are essentially saying, 'We would have gotten away with it, if it wasn't for those pesky subprime loans.'"

"Problem is, the issue was never just subprime loans, it is the far wider and deeper problem of loans made on overly optimistic assumptions secured on U.S. real estate, which is now in a once in a generation slump."

"The banks, in isolating the better mortgage debt, run the risks that the market either offers them a price that would force damaging writedowns of other mortgage debt held on or off balance sheet, or worse, refuses to fund at all."

"'I'm not sure it will be easy to find people to buy this stuff,' said Jochen Felsenheimer, head of credit strategy at Unicredit . 'It's not just a subprime-linked problem. The problem is that we have used securitization instruments to create a bubble. We sold a lot of risk just knowing that the CDO or other manager would buy it.'"

The New York Times. "The biggest banks in the United States, with active encouragement from the Treasury Department, unveiled a plan yesterday to keep the housing-related debt crisis from worsening. 'The idea is to avoid a fire sale of assets,' said one banker involved in the initiative."

"Josh Rosner, an expert in mortgage-backed securities at Graham Fisher, an independent research firm in New York, questioned why the banks needed to establish such a vehicle."

"'If they really believe these are good assets being mispriced in the market,' he said, the banks could just buy them and wait for the asset values to recover. 'This raises the question of whether the banks are doing this just to avoid taking their losses.'"

"'I don’t really see that this is going to make a significant difference,' said Jan Hatzius, chief United States economist at Goldman Sachs. 'It seems a little more like a P.R. move, frankly.'"

"Mr. Hatzius said he wondered 'why this is going on when previously the official word was that things were getting better.'"

"During the summer credit crisis, investors concluded that the default rates on subprime mortgages made last year would probably prove to be the highest in the industry's history. But there appears to be another contender for that dubious honor: subprime loans made in the first half of this year."

"Borrowers who took out loans in the first six months of 2007 are falling behind on payments faster than homeowners who took out loans last year, according to a report by investment bank Friedman, Billings, Ramsey."

"The report's author, Michael Youngblood, a portfolio manager and analyst at Friedman, Billings, Ramsey, said that most mortgage companies and banks had not tightened lending standards for borrowers with weak, or subprime, credit until July or August, even though early this year regulators, analysts and mortgage investors knew that the easy lending policies of 2005 and 2006 were producing high default rates."

"'There are $10.6 trillion of mortgage loans outstanding in the U.S., and even if the brakes had been slammed, it was going to take a long time to slow this locomotive down,' said Youngblood, who has researched home lending for more than 20 years. 'And I don't see that the brakes were slammed on or that the engineer had a new track to follow. That track only now seems to be appearing.'"

"He noted that Countrywide Financial, the largest U.S. lender whose practices are often emulated by smaller companies, did not significantly tighten standards until August."

"And it was only in mid-July that Moody's Investors Service and Standard & Poor's, the large ratings agencies, said they would make major changes in the assumptions that they use to evaluate pools of home loans sold to investors."

"Standard & Poor's on Monday cut its ratings on $4.6 billion worth of residential mortgage-backed securities exposed to subprime mortgages, citing expectations of further defaults and losses in the securities."

"The downgrades include 402 pieces of 138 transactions. All are backed by first-lien subprime mortgage loans issued in the first three quarters of 2005."

"'These rating actions incorporate our most recent economic assumptions, and reflect our expectation of further defaults and losses on the underlying mortgage loans and the consequent reduction of credit support from current and projected losses,' S&P said in a statement."

"In response to a question by Henry Kaufman, the former Salomon Brothers Inc. economist, Federal Reserve Chairman Ben S. Bernanke said investment firms 'need to be as transparent as possible' about how they value their assets."

''This current financial stress is not likely to disappear overnight; partly it is an information problem,' Bernanke said. 'It is going to take a while for investors to appropriately value these assets.'"

"'I would like to know what those damn things are worth,' Bernanke joked, referring to the products that investors have shunned in the credit rout. 'This episode has revealed a weakness in structured credit products,' namely the difficulty in coming up with valuations in periods of stress."

"Moody's Investors Service last Thursday downgraded another $33.4 billion in mortgage-backed securities, noting that it now assumes losses tied to currently delinquent loans will be 40% to 50%. 'The downgrades are coming so fast that you could go to the bathroom, come back to your desk and find you're a junk bond manager,' says James Bianco, president of Bianco Research."

"U.S. housing prices will continue to decline at least through the end of next year and may not begin creeping upward again until 2010, executives from the biggest mortgage financiers said Monday."

"Officials with government-sponsored mortgage companies Fannie Mae and Freddie Mac and CEOs from two major mortgage banks told the Mortgage Bankers Association's annual convention that the continuing spike in foreclosures and a glut of unsold homes will prevent any quick price rebound."

"'It's going to be a long time before we see it bottom out and recover,' said David Lowman, CEO of JPMorgan Chase & Co.'s Global Mortgage unit. 'There's too much inventory already in the marketplace.'"