Some housing bubble news from Wall Street and Washington. Reuters, "Home building projects started in November fell by 3.7 percent as the pace of single-family home construction was the slowest in more than 16 years, a government report on Tuesday showed. Housing starts plummeted 24.2 percent from a year ago and permits, which are a key gauge of future building activity, tumbled 24.6 percent."

"Single-family home starts, which account for the bulk of home building projects, fell for the eighth straight month, tumbling 5.4 percent to an annual pace of 829,000 units, the lowest since April 1991."

"'It's continuing in the same direction that it has been for the last 12 to 18 months,' said Bob Moulton, president of the Americana Mortgage Group. 'I think the trend will continue because it's a very slow moving commodity.'"

From Bloomberg. "Housing starts in November were 48 percent below their Jan. 2006 peak, matching the drop in sales of new homes from the record reached in July 2005."

"A report yesterday added to evidence that housing is far from recovering as 2007 comes to a close. The National Association of Home Builders/Wells Fargo confidence index held at a record low of 19 for a third month in December."

"In the third quarter, new foreclosures hit an all-time high, the Mortgage Bankers Association said in a report Dec. 6, meaning more homes will be piling up on the market."

"Moving to contain the damage, President George W. Bush announced a plan this month to freeze rates for five years on some variable rate mortgages. The proposal wasn't universally embraced."

"'At best, it may stop some of the hemorrhaging of the housing market, but it doesn't necessarily turn things around,' said Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies. 'The fundamental problem with housing is oversupply.'"

The Associated Press. "If the government really wants to stop home foreclosures from surging, here's a simple plan: Boost Americans' income, put more funding toward medical research and insist on marriage counseling for all. And then start buying up land to raise housing prices."

"As far-fetched as all that may sound, such efforts would do more to curb default rates than the Bush administration's plan to freeze adjustable mortgage rates in the coming years for a limited number of subprime borrowers."

"Data from Countrywide Financial Corp., the nation's largest mortgage lender, backs up this point. The Countrywide data provides stark evidence that this plan will serve at best as a Band-Aid on a gaping wound, as does a new Federal Reserve Bank of San Francisco study that showed changes in home prices are 'far and away the best single predictor' of subprime delinquencies."

"It suggests that once a home's value falls below the amount owed on a mortgage, borrowers tend to then view the default option as being 'in the money' and exercise that option."

"Current conditions indicate just that. Housing wealth fell in the third quarter for the first time since 1993, by $128 billion, according to Merrill Lynch, as increases in mortgage debt outstripped the value of real estate assets."

"'Unless the government is going to establish land banks to prevent continued house price deflation, it really is questionable as to whether this 'Hope Now' policy is really going to stop a 'Foreclosure Later' environment,' said David Rosenberg, Merrill Lynch's chief North American economist."

"He noted that home prices have dropped 5 percent so far this year and his firm is forecasting another 10 percent decline from current levels in the coming year."

"Evidence that those who have had their mortgages modified as they moved toward foreclosure still go on to default is adding to such worries."

"Consider that during a housing boom, re-default rates two years after a loan modification are close to 25 percent in the conventional mortgage market and 40 to 60 percent in the weaker mortgage areas, including subprime and Alt-A, according to Joshua Rosner, managing director at the independent research firm Graham Fisher & Co."

"If that happens in the best of times, think about what could go on now as prices are tumbling. That means this mess could drag on for years."

The New York Times. "According to BusinessWeek, the Securities & Exchange Commission and the U.S. Attorney’s office in Brooklyn are looking into an allegation that some Bear Stearns insiders associated with the funds may have been pulling their personal money out of the investment vehicles this spring when the market was in turmoil."

"The alleged redemptions occurred during a time the funds’ managers were urging other investors to stay put, the report said."

"It was the first day of November and Coleman Stipanovich's world was coming undone. Florida school districts and towns had begun pulling their cash out of the $26 billion money market fund he supervised, after they learned it held subprime-tainted debt."

"Stipanovich, who earned $180,214 in 2006, was in New York in confidential meetings with Lehman Brothers Holdings Inc., the largest U.S. underwriter of mortgage-backed bonds."

"What Stipanovich hadn't told his boss, Florida Chief Financial Officer Alex Sink, was that Lehman Brothers was the same firm that had sold the state fund $842 million of mortgage- backed debt in July and August."

"Those securities defaulted within four months, and totaled more failing debt than any other bank sold the state, Florida records show."

"The subprime meltdown made front-page news in June, when Bear Stearns Cos. disclosed that two of its hedge funds were collapsing because they were stuffed with subprime collateral. During the next two months, Wall Street firms were quietly peddling mortgage-backed securities to the states."

"And the states, eager for higher returns, were buying them."

"Joseph Mason, a former U.S. Treasury official and now a finance professor at Drexel University, says Wall Street had few takers for its subprime-tainted debt. 'When they couldn't sell it to more-sophisticated investors, they found less-sophisticated investors like local government investment pools,' he says."

"As home prices rose and hunger for high-yield investments grew, Daniel Sadek (of) subprime mortgage company, Quick Loan Funding Corp., found his niche pushing mortgages to borrowers with poor credit. Such subprime home loans grew to $600 billion, or 21 percent, of all U.S. mortgages last year from $160 billion, or 7 percent, in 2001, according to an industry newsletter."

"Banks drove that growth because they could bundle subprime loans into securities, parts of which paid interest as much as 3 percentage points higher than 10-year Treasury notes."

"'I never made a loan that Wall Street wouldn't buy,' Sadek says. He worked hard to build the business, he says, and the company did nothing illegal."

"Investors from Germany to Japan poured about $1.2 trillion into mortgage-backed securities in those two years, according to Global Insight Inc."

"Now the U.S. economy is paying the bill for that easy credit. Nearly one in six subprime borrowers has missed a monthly payment, sending home prices to their first annual decline since the Great Depression."

"'I was working every day, all day, from dusk to dusk,' says Sadek, who pumped gas and sold cars before creating Quick Loan Funding. Sadek, now 39, got into the lending business in 2002. Staked by banks including Citigroup Inc., Sadek and others in his industry tripled the subprime market in five years."

"Loan officers were hired and fired all the time at Quick Loan Funding's 26,000-square-foot call center in Irvine, says Bryan Buksoontorn, who joined the company in 2004. Sadek and his managers would berate the sales staff, many of whom had no experience or training, Buksoontorn says. 'They would get in your face,' he says. 'Why aren't you ordering appraisals? Why aren't you selling?'"

"Sadek brought a car salesman's mentality to mortgages, Espinoza says. 'It's the same type of hard sell,' says Steven Espinoza, an employee from 2003 to 2005. 'Close 'em, close 'em, close 'em.'"

"'If we had a prime borrower on the line, we hung up on them,' Buksoontorn says. 'We were geared toward subprime because they were easier to close. We were giving them money no other bank would dare to give them.'"

"Sadek says that with the support of Citigroup, which funded the loans, he pioneered lending to homebuyers with credit scores of less than 450. 'We made most of our money from selling loans to banks,' Sadek says."

"A key selling point was the 50 percent rise in home prices nationally from 2001 to 2006, according to the National Association of Realtors. Mortgage salespeople told homeowners that as long as values continued to increase, they could refinance or sell before their interest rates jumped."

"It wasn't a lie. Year over year, prices hadn't fallen since the 1930s, according to the Realtors group. The belief that values would form a stairway even seduced Quick Loan Funding employees who took out 2/28 loans themselves, says Marcus Bednar, a former sales manager."

"'They believed everything the borrowers believed, that the market was going to go up,' Bednar says. 'It wasn't just something we were pushing because we tried to rip people off.'"

"Edward M. Gramlich, a Federal Reserve governor who died in September, warned nearly seven years ago that a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford."

"But when Mr. Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan, the Fed chairman."

"John C. Gamboa and Robert L. Gnaizda of the Greenlining Institute implored Mr. Greenspan to use his bully pulpit and press for a voluntary code of conduct."

"'He never gave us a good reason, but he didn’t want to do it,' Mr. Gnaizda said last week. 'He just wasn’t interested.'"

"'I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk,' Mr. Greenspan wrote in his recent memoir. 'But I believed then, as now, that the benefits of broadened home ownership are worth the risk.'"

"On Tuesday, under a new chairman, the Federal Reserve will try to make up for lost ground by proposing new restrictions on subprime mortgages, invoking its authority under the 13-year-old Home Ownership Equity and Protection Act."

"Fed officials are expected to demand that lenders document a person’s income and ability to repay the loan."

From MarketWatch. "The proposed rules wouldn't help current borrowers holding a loan but aim to head off another lending crisis like the one that has crippled the subprime mortgage industry."

"The proposals would prohibit lenders from granting mortgages to borrowers whose only means of repayment would be an increase in the value of the property."

"It also prohibits lenders from paying mortgage brokers fees for higher-rate loans. Additionally, the Fed proposed prohibiting a creditor from making a higher-priced loan without setting up an escrow account for property taxes and homeowners' insurance."

"David Wyss, chief economist at Standard & Poor's, called the limitations 'almost irrelevant' since no one is making subprime loans now."

"'We always lock the barn door well after the horse has left,' Wyss said in an interview on Bloomberg TV. 'I think what they are hoping is to restore confidence in this category by restricting what loans can be made so investors will start making these loans again,' Wyss said."