Some housing bubble news from Wall Street and Washington. MarketWatch, "Mortgage giant Fannie Mae Wednesday said it sees increased credit losses and falling home prices next year as the housing correction continues to play out. Fannie Mae is forecasting a peak-to-trough decline of between 10% and 12% in home prices for this housing cycle. The lender said it expects 2008 credit losses to be between 8 and 10 basis points, up from a range of 4 to 6 basis points this year."

"The lender said there is a 'severe correction' in the U.S. housing market. 'The decline is expected to be nationwide and is estimated at about one-half of the magnitude of the decline experienced in Southern California in the early 1990s,' it said."

"The information was posted on Fannie Mae's Web site in a road-show presentation supporting its offering of $7 billion in non-convertible preferred stock, which the company unveiled on Tuesday. Fannie Mae is also slashing its dividend by 30%."

"Daniel Mudd, Fannie's president and CEO, said the steps are designed to serve the mortgage market. 'The market needs us to be there -- and we believe this plan will help us do that,' Mudd said in a statement."

"Fannie Mae estimated its mortgage portfolio at $723 billion in November."

From Fortune Magazine. "Could Fannie Mae be the next large financial company to announce billions of dollars of market losses on bonds backed by distressed mortgages? That certainly seems possible after the government-sponsored mortgage giant announced plans Tuesday to bolster capital."

"While...subprime and Alt-A mortgage-backed bonds are only a small proportion of Fannie's overall mortgage holdings, their combined value of $76 billion is almost double Fannie's $40 billion of capital."

"Fannie Mae's quarterly financial filing for the third quarter said Fannie had $42.2 billion of private-label subprime securities and $33.8 billion of private label Alt-A securities. It's possible that the AAA subprime securities are trading at a much steeper discount...than the 2% discount that Fannie Mae applied in the third quarter."

"A Wall Street bank that trades AAA-rated subprime bonds is currently quoting prices for such bonds of around 88 cents on the dollar, or a 12% discount, for loans made in 2006, and 78 cents on the dollar, or a 22% discount, for loans made in 2007."

"A similar exercised can be applied to the $33.8 billion of Alt-A securities. Many of these so-called 'liar loans' are likely to go bad. For instance, as part of its rescue this week of ETrade, hedge fund Citadel appeared to pay roughly 60 cents on the dollar for ETrade's Alt-A loans."

"That was a special deal in which Citadel was able to get seemingly attractive terms, but it shows the skepticism about the credit quality of Alt-A loans."

From Web CPA. "As the subprime mortgage meltdown grows, some experts are starting to see the resulting fallout rivaling corporate scandals of earlier this decade, like Enron."

"Former Securities and Exchange Commission Chairman Arthur Levitt expects to see more massive writedowns on the way. Last week, he told Bloomberg News that he thinks the Financial Accounting Standards Board should force the banks to close a loophole that lets them keep the structured investment vehicles holding subprime debt off their balance sheets."

"'These banks claim these entities were separate,' he said. 'If so, then why are billions of dollars being spent bailing out these companies? Evidently they were not as separate as claimed in their accounting.'"

"Experts are beginning to question whether increased regulation will help. 'We seem to fly from one crisis to another,' said FASB Chairman Robert Herz at the IFAC World Accountancy Forum in New York. 'When I go abroad nowadays, [I see] we’re losing credibility. It doesn’t play on Main Street anymore and it doesn’t play in most foreign capitals.'"

From Reuters. "The Financial Accounting Standards Board is requiring companies to disclose more about the market values of their investments, under the FAS 157 and FAS 159 rules that went into effect for fiscal years beginning after Nov. 15."

"In the end, that sort of transparency is what investors will demand anyway, Jim Quigley, CEO of Deloitte Touche Tohmatsu, said at the conference."

"'The market forces will be the way that the correction will occur,' Quigley told Reuters. 'It's clear that there's not the transparency that everybody wants and needs there, but the marketplace is going to adjust to that. People won't buy until they have the information that they need.'"

"The first of a new round of investor claims was filed against Bear Stearns Cos. on Wednesday for its role in managing two mortgage hedge funds that collapsed earlier this year, securities lawyers said."

"A group of lawyers for 11 investors with combined $62 million in losses says that Bear continued to sell shares of the funds this spring, when the subprime market was melting down."

"'Officials at Bear Stearns engaged in a concerted effort to conceal the true state of affairs at both of these hedge funds for an extended period of time,' said lawyer Steve Caruso of Maddox, Hargett & Caruso, one of four firms representing the fund-of-funds manager."

"As one of Wall Street's top underwriters of mortgage-backed securities, Bear Stearns knew or should have known these markets had become extremely unstable, said Ryan Bakhtiari of Aidikoff, Uhl & Bakhtiari."

"'My gut feeling is these funds were used as a dumping ground by Bear Stearns,' said Bakhtiari."

"A structured investment vehicle (SIV) managed by Dutch bank Rabobank and Citigroup has sold almost half its assets, 4.5 billion euros ($6.6 billion), as the fund could not find sufficient refinancing, Rabobank said on Wednesday."

"'The market has dried up. It is all related to what is happening in the United States,' a Rabobank spokesman said, confirming a report in Dutch daily Het Financieele Dagblad about the declining size of the fund, called Tango Finance."

"The fund currently holds about 5.5 billion euros in assets, down from 10 billion euros in the summer, and could reduce its holdings further to reduce investment risks, the spokesman said."

"'Basically, what Tango is doing now is called unwinding,' he said, adding that the market value of Tango's currently held assets is about 97 to 98 percent of their nominal value."

"The spokesman declined to say whether Tango has been making losses or whether cooperatively-owned Rabobank would put the SIV's assets on its balance sheet if they could not be sold."

"A spokeswoman for Citigroup, which wrote down $6.8 billion in the third quarter and could face more losses on assets, said: 'Citigroup has no responsibility for the funding of Tango.'"

From MSNBC. "One proposal announced this week by Treasury officials would freeze interest rates on adjustable mortgages for borrowers who are currently keeping up with their payments."

"'There is value in these loans,' said Sheila Bair, chairwoman of the Federal Deposit Insurance Corp. 'They can’t perform at the reset (rates) because those resets were never realistic. They can perform at the starter rate.'"

"'I think there a dearth of good ideas,' said Mark Zandi, chief economist at Moody’s.com. 'This is a very difficult problem to tackle for policymakers. There is no magic bullet.'"

"Critics of bankruptcy reform say the change could have a chilling effect on new lending, because lenders could no longer count on original loan terms surviving a bankruptcy challenge."

"'We need people to be comfortable making home mortgages,' said Chris Mayer, a Columbia University economist. 'If I were a lender right now looking at making a new loan, I would be pretty nervous.'"

"Zandi believes that eventually the government will have to set up what amounts to a mortgage clean-up fund, similar to the Resolution Trust Corp. that was created to buy up loans after the collapse of the savings and loan industry in the late 1980s."

"But the idea of using taxpayer dollars to head off foreclosures still faces opposition...based on mail received by msnbc.com."

"'In most cases both lender and borrower are getting what they deserve,' wrote Lee Goodridge of Marion, N.Y. 'Maybe it's about time these lenders stopped scheming and scamming, and borrowers start living within their means instead of trying to outdo the Joneses, let alone keep up with them. Why should the government be doing anything with this?'"

"'When will people take personal responsibility for their actions?' wrote Greg Gagola of Tallahassee, Fla. 'Borrow what you can pay back. Read your contract. If you do not understand your contract, hire a real estate lawyer. We as a nation need to take responsibility for what we do.'"

The Washington Post. "It was Charles Mackay, the 19th-century Scottish journalist, who observed that men go mad in herds but only come to their senses one by one."

"We are only at the beginning of the financial world coming to its senses after the bursting of the biggest credit bubble the world has seen."

"What's important to understand is that this isn't just a mortgage or housing crisis. The financial giants that originated, packaged, rated and insured all those subprime mortgages were the same ones, run by the same executives, with the same fee incentives, using the same financial technologies and risk-management systems, who originated, packaged, rated and insured home-equity loans, commercial real estate loans, credit card loans and loans to finance corporate buyouts."

"It is highly unlikely that these organizations did a significantly better job with those other lines of business than they did with mortgages."

"The banks got the bright idea of buying up a bunch of mezzanine tranches from various pools. Then, using fancy computer models, they convinced themselves and the rating agencies that by repeating the same 'tranching' process, they could use these mezzanine-rated assets to create a new set of securities -- some of them junk, some mezzanine, but the bulk of them with the AAA ratings more investors desired."

"It was a marvelous piece of financial alchemy, one that made Wall Street banks and the ratings agencies billions of dollars in fees. And because so much borrowed money was used...the whole thing was so highly leveraged that the returns, at least on paper, were very attractive."

"No wonder they were snatched up by British hedge funds, German savings banks, oil-rich Norwegian villages and Florida pension funds."

"What we know now, of course, is that the investment banks and ratings agencies underestimated the risk that mortgage defaults would rise so dramatically that even AAA investments could lose their value."

"If all this sounds like a financial house of cards, that's because it is. This may not be 1929. But it's a good bet that it's way more serious than the junk bond crisis of 1987, the S&L crisis of 1990 or the bursting of the tech bubble in 2001.'"

From Marketplace. "Ramon Brayan was the first person in his family to graduate high school, to finish college, to get an MBA. He began repaying his debt to his mom in Thanksgiving of 2001, when he bought her a brand new house. A cousin lured him into real-estate finance. He started working for Resmae, a subprime mortgage lender. He made $30,000 in a single month."

"Brayan: Then your mind starts wandering. You see it as, OK, I made 30 this month, it's going to stay like that. You know, me being a business person as well, I'm like, let me buy some more property and hold onto it."

"Ramon sold that American Dream. And he bought it, too. He purchased the home for his mom, another for himself, his childhood condo and an investment property. All four have adjustable-rate mortgages. All four are subprime loans."

"Ramon leased an office to go into business for himself. Then the mortgage market crashed. Now, he's out of a job, and he's on the hook for $16,000 a month."

"Brayan: You pick up the mail and there's like, a ton of bills, and you see a lot of money going out of your bank account and not as much money coming in. I've worked really hard to get to where I'm at, I don't want to lose it. So how do I keep it?"

"Ramon's looking for a job back in ad sales. He was forced to rent the house be bought for his mom. (She's) back in their cramped childhood condo. A framed photo of Ramon in a cap and gown hangs by her bedroom door."