Some housing bubble news from Wall Street and Washington. Associated Press, "At an emergency meeting of the Citigroup Inc. board Sunday, the nation's largest bank announced CEO Charles Prince's widely expected departure, but also estimated it would take additional losses of $8 billion to $11 billion. In the third quarter, it already took a hit of $6.5 billion in asset mark-downs and other credit-related losses."

The Street.com. "A writedown of that magnitude would make Citi Wall Street's biggest loser, at least so far, on this year's collapse of the markets for risky paper. Whether further debt-related losses are on the way at Citi will now become the biggest question surrounding the bank."

"Indeed, the firm said in its press release announcing the writedown that 'the impact on Citi's financial results for the fourth quarter from changes in the fair value of these exposures will depend on future market developments and could differ materially from the range above.'"

From MarketWatch. "Separately, The Wall Street Journal reported that the Securities and Exchange Commission is reviewing Citi's accounting for a type of funds known as structured investment vehicles, or SIVs."

"Citigroup spokeswoman Christina Pretto denied any irregularities connected with the SIV funds, telling MarketWatch: 'Citi is confident that its accounting for SIVs is proper and in thorough accordance with all applicable rules and regulations.'"

"Earlier this morning, Fitch Ratings downgraded Citigroup Inc.'s Long-term Issuer Default Rating to 'AA' from 'AA+', along with Citi's other long-term ratings and the Individual rating."

"Sizable charges are likely for Citi's exposure to U.S. subprime-related assets, including collateralized debt obligations and other exposures. Recently, prices of these instruments have come under further considerable pressure from end-third quarter-2007."

"In its securities and banking business, Citi's direct exposure to U.S. subprime-related assets totals $55 billion, consisting of almost $12 billion of exposure in its lending and structuring business as well as approximately $43 billion of exposure to super senior tranches of CDOs backed by ABS."

From Reuters. "'Citigroup's announcement that it would have to make $8-$11 billion of additional markdowns on its CDO exposures is unwelcome news after the very weak third-quarter results,' said S&P's credit analyst Tanya Azarchs."

"'Moreover, deteriorating credit conditions in the consumer lending space, particularly in first and second lien mortgages, suggest that the company, not just the investment bank, could face a difficult environment across a number of fronts in the short to medium term,' S&P said in its statement."

"'This could result in a level of earnings volatility incompatible with a 'AA-plus' rating,' S&P said."

From Bloomberg. "H&R Block Inc. said Chief Financial Officer William Trubeck has stepped down from his position 'effective immediately.'"

"H&R Block used emergency bank lines in September to pay off more than 90 percent of the short-term debt that creditors refused to refinance in August. H&R Block lost more than $1 billion on its Option One subprime home-loan business over five quarters."

"The turmoil in the risky subprime mortgage-market is a '$1 trillion problem ... There are $1 trillion worth of subprimes and Alt-As and basically garbage loans,' said Bill Gross, chief investment officer of Pacific Investment Management Co., on CNBC Television."

"Gross said he expects $250 billion of subprime and Alt-A mortgage loans to default and those defaults will fall to the balance sheets of investment stalwarts such as Merrill Lynch and Citigroup."

"The Federal Reserve will have to cut its federal funds target rate to prevent a dramatic fall in housing prices in the wake of the subprime meltdown, said the manager of the world's biggest bond fund on Monday."

"Federal Reserve Governor Frederic Mishkin said last week's interest-rate cut was aimed at reducing economic risks and policy makers can take back the move should it prove 'unnecessary.'"

"'Should the easing eventually appear to have been unnecessary, it could be removed,' Mishkin said at a conference in New York."

"'If, in their quest to reduce macroeconomic risk, policy makers overshoot and ease policy too much, they need to be willing to expeditiously remove at least part of that ease before inflationary pressures become a threat,' Mishkin said."

"Asked about last month's agreement among Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. to set up a fund to increase liquidity in asset-backed commercial paper, Mishkin said the 'details' are 'not clear to me.'"

"The Bank of Japan is committed to gradually raising the country's 'very low' borrowing costs to prevent investment bubbles, Governor Toshihiko Fukui said. 'Keeping interest rates lower than the economy's strength is risky,' Fukui told business executives in Osaka today. 'Interest rates need to be increased in a timely manner.'"

"The bank is determined to avoid economic bubbles, Fukui said. 'Indulging ourselves in worrying about downside risks alone and just doing nothing could lead to a big policy mistake in the future,' Fukui later told reporters."

"Bank of Japan policy makers said the U.S. subprime mortgage collapse was caused by keeping interest rates too low, signaling their intention to increase the world's lowest borrowing costs to prevent investment bubbles."

"Some of the nine board members said a 'long period' of global monetary easing had led to 'excessive financial behavior' that resulted in the U.S. home-loan crisis, according to minutes of their Sept. 18-19 meeting published today in Tokyo."

"Glenn Stevens may become the first Australian central bank governor to raise interest rates in the midst of an election campaign."

"'The bank's board has no option but to increase rates; the economy is at full stretch,' Bernie Fraser, central bank governor for seven years until 1996, said in an interview from Canberra. 'Stevens and his board will not be deterred by the election,' added Fraser."

"The A$1 trillion economy is in its 16th year of expansion. The jobless rate is at a 33-year-low of 4.2 percent."

"U.K. Chancellor of the Exchequer Alistair Darling said banks will curtail risky forms of lending after the subprime mortgages slump in the U.S. wiped out billions of dollars of profits, a shift that he said he welcomes."

"'Banks will be more cautious about lending and when it comes to revising some of the more foolish lending, such as in the U.S. subprime market, then that is no bad thing,' Darling told the BBC Radio 4's Today program in London."

"The U.S. housing slowdown that propelled 10-year Treasuries to their biggest gains since 2002 may soon make the same securities laggards in the government bond market."

"Fund managers may 'no longer buy the 10-year Treasury' to protect their holdings, said Ajay Rajadhyaksha, head of interest rate strategy in New York at Barclays Capital Inc., one of 21 primary dealers of U.S. government securities obligated to bid at Treasury auctions."

"In a sign that demand may already be waning, the 10-year note yield rose to 64 basis points above two-year notes, the biggest gap since April 2005. When the rally started in June, there was no difference."

"Yields 'should be higher than they are now,' said Michael Schultz, who helps manage $6 billion. 'With housing prices actually decreasing coupled with tighter underwriting standards, you've definitely decreased the number of people who could refinance.'"

"Because fewer houses are being refinanced, the average maturity, or duration, of bonds backed by loans is increasing. Barclays estimates the duration for the mortgage market has expanded to about six years from 4.4 years in September and 3.5 years in March."

"Rising duration can be bad for holders of longer-maturity securities. The increase has the same interest-rate risk to investors as if the Treasury boosted the supply of 10-year notes by $911 billion, according to estimates by Barclays."

"'This may be a unique situation in the mortgage market where rates are going down and mortgages are extending,' said Douglas Dachille, CEO of New York-based First Principles Capital Management LLC, which oversees $3.5 billion."

"'Traditionally, mortgage prepayments would be screamingly fast,' at current Treasury yields, said John Cerra, who manages $13 billion of bonds at TIAA-CREF. There are no opportunities to refinance loans for 'any but the best borrowers,' he said."

From Builder Online. "Myers Barnes is one of the most respected educators in new-home sales. He sat down to talk to Pat Curry, BUILDER Senior Editor, Sales and Marketing."

"BUILDER: What are builders doing right during the housing market slowdown? MB: Until we outstrip supply and demand, we'll be in this situation. They've come to realize that building more and trying to hold profits that are phantom doesn't work."

"BUILDER: Even if it means slashing prices and piling on incentives?"

"MB: The reason the consumer is so confused is because he doesn't know where the bottom is. Find the bottom as fast as you can and get it off the books. Quit playing with it....Right now we have ridiculous incentives. Just find the bottom and get it over with. And then we can move on.'"

"BUILDER: So what do builders say to their customers who bought at higher prices?"

"MB: I bought a condo at the top of the market...We're probably never going to get our money out of it...You'll never beat the foreclosures and flippers when their units come on the market so the comparables are going to be messed with anyway. So get the inventory out of the way. Find the bottom as fast as you can. Quit playing with it."