Some housing bubble news from Wall Street and Washington. Bloomberg, "Washington Mutual Inc., the biggest U.S. savings and loan, will write down the value of its home- lending unit by $1.6 billion in the fourth quarter and cut about 6 percent of its workforce as mortgage-market losses increase. It plans to shutter 190 of 336 home-loan centers."

"Washington Mutual offered a bleak assessment of the mortgage market, estimating that industrywide home loan originations will probably shrink 40 percent in 2008 to $1.5 trillion, down from about $2.4 trillion this year. The company said it plans to cease lending through its subprime mortgage channel."

The Seattle Times. "Seattle-based WaMu, one of the nation's largest home lenders, announced a major restructuring of its mortgage-related businesses Monday and all but wrote off 2008 as a lost cause. WaMu said it expects to put aside anywhere from $7.2 billion to $8 billion next year for bad loans, compared with an estimated $3.1 billion to $3.2 billion this year and $816 million in 2006."

"'We had no clue this was coming,' said one Seattle-area loan consultant who has worked at WaMu for five years. 'We've heard some of the people in higher positions are losing their jobs, managers who that never would have happened to in the past. That has us scared.'"

"Another Seattle-area loan consultant said she joined WaMu in March, seeking job security, but was laid off on Monday. 'I think it's heartless,' she said by phone while packing her belongings. 'I guess this industry doesn't have any security.'"

The Associated Press. "H&R Block Inc. said in a preliminary earnings report Tuesday that it...continued to wrestle with its disintegrating mortgage arm."

"The company said its discontinued operations had a pretax loss of $551.2 million, including $367 million in operating losses and losses on sales of mortgage assets, $123 million to adjust the value of remaining mortgage origination and servicing assets and $61 million in costs for restructuring Option One Mortgage Corp loan origination operations."

"'We continue to move resolutely to end our participation in the subprime mortgage business,' Chairman Richard Breeden said in a news release. 'While we incurred a painful loss in exiting these positions, we determined to take our lumps and move forward.'"

From MarketWatch. "MBIA Inc.'s decision to raise up to $1 billion in new capital and set aside at least $500 million to cover expected mortgage-related losses puts pressure on rival bond insurers to do the same, analysts said on Monday."

"'This announcement puts more pressure on the other guarantors to both raise capital and recognize larger (actual and mark-to-market) losses,' wrote Ken Zerbe, an analyst at Morgan Stanley."

"The tumor in the financial markets known as structured investment vehicles is shrinking, reducing the urgency for a bailout sponsored by the U.S. Treasury."

"HSBC Holdings Plc, bond insurer MBIA Inc. and other companies are arranging their own rescues. The steps are diminishing the threat that SIVs will dump holdings and further roil credit markets contaminated by losses in securities related to subprime mortgages."

"'Every day that goes by we are seeing more SIVs being reorganized to avoid a fire sale,' said Priya Shah, a credit analyst at Dresdner Kleinwort Group Ltd. in London. 'The longer the SuperSIV takes, the less of a need there will be for it.'"

From Reuters. "Investor Warren Buffett on Tuesday told CNBC television that a plan by some large banks to create a fund to buy tarnished mortgage securities is unlikely to cure what ails financial markets."

"'You can't turn a financial toad (into a prince) by kissing it or by securitizing it or by transferring its ownership to somebody else,' he said."

"Mortgage finance giants Fannie Mae and Freddie Mac are changing their criteria for purchasing delinquent home loans they've guaranteed, in order to reduce the number they buy from investors, the companies said Monday."

"Fannie Mae's intention to match Freddie Mac's move was reported online late Monday by The Wall Street Journal, which cited concerns among some financial analysts that the companies could use the new policy as a way to delay booking credit losses."

"Freddie Mac and Fannie Mae, the other housing-related government-sponsored enterprise, after record preferred stock sales have about $6.5 billion and nearly $9 billion, respectively, in excess capital to help absorb losses through 2008, said Rajiv Setia, a strategist at Barclays Capital in New York."

"But prospects linger that the companies will have to raise more capital if market conditions worsen, he said."

"'Fannie Mae and Freddie Mac are not expecting market conditions to improve any time soon, and they are now ready for credit losses to rise,' Setia said on a conference call. 'Secondly, neither is expecting to get capital relief from OFHEO any time soon.'"

The Denver Post. "Fannie Mae, the country's largest backer of mortgages, is knocking 5 percentage points off the amount it will finance in areas with declining prices. Borrowers in such areas also can expect to pay an interest rate about an eighth of a percentage point higher than in areas where home values are holding up better, lenders said."

"Jerry Kaplan, VP of capital markets with Cherry Creek Mortgage in Greenwood Village, said he hasn't ever seen Fannie Mae tighten up like this."

"Lou Barnes, owner of Boulder West Financial Services in Boulder, said the move makes mortgages tougher to get in areas that need them most, making a more severe downturn likely. 'In every credit panic, the government must maintain a good supply of new credit,' Barnes said. 'The authorities have failed since the crunch onset in August.'"

"A borrower previously eligible for a 100 percent or no-money-down loan with a lender working through Fannie Mae will now have to come up with a 5 percent down payment starting in mid-January. A borrower using a loan with a 10 percent down payment will have to come up with 15 percent soon."

"Wholesale lender Flagstar Bank has already put Adams, Arapahoe, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson, Park and Weld counties on its list of areas with declining values."

"Those counties join others in California, Florida, Ohio, Michigan and Virginia, among other states, it expects will be on the list of declining areas."

"Kaplan said the bigger down payments and higher interest rates in some areas are a small price to pay to make sure there is liquidity in the market. 'What would our economy be like if Fannie Mae and Freddie Mac were not around?'"

"Commerzbank AG CEO Klaus-Peter Mueller said banks may make further writedowns after UBS AG yesterday said it will reduce the value of U.S. subprime mortgage investments by $10 billion."

"'The prices for subprime products drastically declined again in November' and that's why UBS had to write down the value of investments, Mueller said in an interview at a conference in Frankfurt today. 'In such a market phase, further writedowns can be expected for the entire industry.'"

The Wall Street Journal. "Columbia Management is shutting its Columbia Strategic Cash Portfolio, it told clients late last week, after facing major withdrawal requests from large investors. The fund, which held $34 billion at the end of November, has been split in two."

"The fund's closure spotlights spreading uncertainty among investors as they yank money out of 'enhanced' cash funds like Strategic Cash Portfolio. Funds like these are designed to carry slightly more risk than money-market funds."

"Enhanced cash funds have grown in popularity as investors sought slightly higher yields amid historically low interest rates. They achieved added returns partly by investing in complex securities backed in part by mortgages and other assets. However, many of these, even those with high credit ratings, have collapsed in price."

"A report yesterday by Standard & Poor's found that about 30 U.S.-oriented enhanced cash funds rated by S&P had lost a total of $20 billion, or 25%, of their assets, in the third quarter. In one of the more dramatic instances, one fund (which S&P declined to identify) saw its assets under management shrink by 98%, or $2.5 billion."

"Issuance of securities tied to U.S. subprime residential mortgages may level off next year after falling further, Standard & Poor's said on Monday."

"S&P said in its report that it rated $26.3 billion of subprime residential mortgage-backed securities in the third quarter of this year, down 64 percent from the second quarter and 73 percent from the third quarter of last year."

"Loans originated in 2006 and the first half of 2007, however, are likely to continue to underperform loans made in other years."

The Herald Tribune. "How did the state's money market fund for the use of schools, fire departments, county and city governments end up owning $2.3 billion in junk? According to two avid observers of the mortgage debt scene, the failures of the Local Government Investment Pool are but the latest example of an inherent conflict of interest: Bonds, notes and commercial paper get their safety ratings from firms that are paid by the issuers."

"'The run on the Florida fund is a primary example of the divergence of interest between issuers and investors,' says Sean Eagan, managing director of Eagan Jones Ratings Co. of Haverford, Pa."

"'Generally speaking issuers want the highest rating possible, whereas investors, in contrast, are looking for timely accurate ratings,' Eagan said. 'They want to get to the truth quickly.'"

"For their part, both Standard & Poor's and Moody's say their rapid downgrades of the state fund's investments speak to the unprecedented degree of pain that the housing market has caused the investment world. 'What we have said repeatedly is that because of the unprecedented market dynamics of the past five months, there have been unprecedented downgrades,' said Mimi Barker, a spokeswoman at Standard & Poor's in New York."

"The Local Government Investment Pool owns $170 million worth of an Axon Financial Funding security that matures April 25, 2008. In roughly a month, Standard & Poor's changed its trading on that security from 'AAA' to 'D,' Eagan notes."

"'In our opinion, there is no worse a failure than this,' Eagan said. 'From Triple A to D in one month. If we had an analyst doing that, that analyst would be out the door in two seconds. There is no way these SIVs should have been rated at the Triple A level.'"

"Moody's cut its AAA rating of Axon as a corporation by nine notches in one fell swoop on Oct. 23."

Fin Alternatives. "Will losses from securities backed by subprime mortgages lead to litigation against my hedge fund and its managers? If so, will my directors and officers (D&O) insurance policy or other lines of coverage protect my firm and its individual directors and officers?"

"Already, at least 30 securities litigations have been filed against the subprime lenders, investment banks and now hedge funds that placed highly leveraged bets on packages of subprime mortgage derivative products. Investor-plaintiffs have even begun to prey upon directors and officers in their individual capacities, alleging untoward conduct and egregious mismanagement."

"Will insurance companies cover the losses arising from the subprime debacle? In some cases, yes. According to Reinsurance broker Guy Carpenter, total subprime-related losses for D&O insurers alone could top $3 billion."

"However, those firms that do obtain defense and indemnification from their insurance providers are likely to have to fight for that coverage every step of the way."

The Street.com. "One of the biggest residential development projects in Arizona history is quietly turning into a major bust."

"The question now is whether the big homebuilders involved in the deal, Toll Brothers and Meritage Homes are properly marking down their land investments in the much-heralded venture."

"With the once-hot Phoenix market crash-landing, it now appears that Toll Brothers and its partners ended up paying too much for the land, on which they likely cannot build today for a profit."

"At the time of the purchase, Toll Brothers, the general partner of the joint venture, trumpeted the deal as the 'most expensive' land transaction in Arizona history, citing research from the Arizona Republic."

"The fact that Simon Property wrote off its entire investment in the project is turning some heads. As the company now likely pulls its retail development, some wonder whether the project will ever get built."

"'My understanding is the venture itself, the whole group, is not thinking it is going to work at this time,' says RBC Capital Markets analyst Rich Moore, who covers Simon Property and other real estate investment trusts. 'It is rare for a developer to write something down unless they feel pretty certain it is not going to work.'"

"Regardless of whether the homebuilders abandon the project, the Simon Property writeoff raises questions about whether the companies are being conservative enough in their valuations of land holdings."

"'Builders are not being aggressive enough, generally speaking,' says an analyst who was on the Toll call last week. 'They are not doing what Simon did.'"

"Stephen East, a homebuilder analyst with Pali Capital, says he visited the market a month ago and was surprised at the 'sheer amount of property.' 'There is such a massive oversupply,' East said.'"

"In early 2006, when the deal closed, 'the market had begun to slow down, but I don't think anyone had bought into that idea yet,' says Jay Butler, director of realty studies at Arizona State University. 'People were still buying land with the idea that Phoenix would grow forever.'"