Some housing bubble news from Wall Street and Washington. CNN Money, "Home prices fell 6.7 percent in October, compared with a year ago, according to the S&P/Case-Shiller 10-city home-price index, a record drop as housing markets continued to deteriorate. It marked the 10th consecutive month of price depreciation and 23 months of decelerating returns. Large inventories have created an 11-month supply of homes for sale; a spike in foreclosures has added to the supply; and the increase in sellers of vacant homes desperate to move."

"Miami was hit with a 12.4 percent decline in the month, the most of any area. Tampa fell 11.8 percent and Detroit, 11.2 percent. Sun Belt cities have suffered deep losses with San Diego down 11.1 percent in the past year, Phoenix off 10.6 percent and Las Vegas 10.7 percent. In Los Angeles, a huge market, home prices have fallen 8.8 percent."

"Lawrence Yun, chief economist for the National Association of Realtors and among the most optimistic of industry insiders, conceded that large inventories will mean further price declines. 'Price growth during the boom was clearly unsustainable. This is the payback,' he said."

The Star Ledger. "Hovnanian Enterprises has grown into the nation's sixth-largest homebuilder, snapping up smaller businesses and expanding into a total of 19 states. Riding the great housing boom of the past decade, the company built developments as fast as it could, with homebuyers queuing up overnight to sign sales contracts like groupies camping out for Hannah Montana tickets."

"The credit crunch and a glut of unsold homes has put an end to those glory days, however. Hovnanian last week reported dismal results for the fourth quarter and fiscal 2007, which ended Oct. 31 for the company."

"Hovnanian has a large exposure to the southwestern Florida housing market, where demand has plummeted. In the Fort Myers-Cape Coral area, the company has an unusual arrangement in which homeowners buy lots, then arrange for third-party financing to build their home. In some cases, homeowners are backing out of the construction loans, and the defaults are eating into Hovnanian's profits, analysts said."

"In California, another big market for the company, home prices have begun to slide dramatically. In one Northern California community, average sales prices have fallen 28 percent in less than a year, once Hovnanian's sales discounts are factored in, CEO Ara Hovnanian said on a conference call last week. In a second town in Southern California, average prices have slipped 35 percent."

"'I wish I could say these are the exception in California, but they are not,' Hovnanian said."

"One selling point for the company is that the family has been in business since 1959, and has seen its share of down cycles. '2007 is a very sharp correction, but it's not unprecedented,' Hovnanian said."

"In both 1975 and 1981, housing starts also plummeted. But in both cases, the economy was in recession and interest rates were much higher than current levels, Hovnanian said."

From Bloomberg. "Look at almost any major homebuilder's balance sheet these days, and it practically screams at you: 'Don't believe Mr. Market. Trust me!'"

"Either homebuilders as a class are grossly undervalued, or their assets are worth much less than their financial statements say. Odds are it's the latter. Home prices still show no sign of bottoming."

"Hovnanian Enterprises Inc. last week reported a $466.6 million net loss for its fiscal fourth quarter ended Oct. 31, including $382.7 million of pretax writedowns. The company said it had $3.5 billion of inventory at Oct. 31 and a $1.3 billion book value. Its market value is just $448 million. Hovnanian spokesman Jeff O'Keefe declined to comment. The company's stock is down 79 percent this year."

"So, to believe Hovnanian's balance sheet, Hovnanian's inventory is worth almost eight times more than the stock- market value for the entire company."

"One investor on Hovnanian's Dec. 19 earnings call asked: 'Can you believe the book value?' Hovnanian's chief financial officer, Larry Sorsby, replied: 'We are just not in a position that we are going to make a projection.'"

"Pulte is one of five companies in the Standard & Poor's 500 Homebuilding Index; the others are Centex Corp., D.R. Horton Inc., KB Home, and Lennar Corp. While the five companies have a combined book value of $22.7 billion, the stock market says they're worth just $15.2 billion. Put another way, the market is signaling that their net asset values are inflated by more than $7 billion, mostly because of frothy inventory values."

The New York Times. "The number of mortgage fraud cases has grown so fast that government agencies that investigate and prosecute them cannot keep up, lenders and law enforcement officials have said."

"Reports of suspected mortgage fraud have doubled since 2005 and increased eightfold since 2002. Banks filed 47,717 reports this year, up from 21,994 two years ago, according to statistics from the Federal Bureau of Investigation and the Financial Crimes Enforcement Network of the Treasury Department." "In 2002, banks filed 5,623 reports."

"'I don’t think any law enforcement agency can keep up with mortgage fraud, because it’s such a growth industry,' said Chuck Cross, vice president of mortgage regulatory policy for the conference of state bank supervisors, an organization of regulators and bankers. 'There’s too many cases, not enough agents.'"

"'I could hire a dozen investigators and a dozen prosecutors and only scratch the surface,' said David McLaughlin, a senior assistant attorney general in Georgia who coordinates prosecutions of mortgage fraud."

"Losses involving federally insured banks totaled $813 million in the 2007 fiscal year, more than double the $293 million lost in the 2002 fiscal year."

"These figures most likely represent 'the tip of the iceberg,' said the Mortgage Bankers Association, because they do not cover mortgage brokers, who arrange more than half of new mortgages. The industry estimates the total loss this year at $4 billion."

"'Law enforcement is just absolutely overwhelmed,' said Corey Carlisle, senior director for government affairs for the Mortgage Bankers Association, which has lobbied for more money to fight fraud. 'Lenders say they have to market their cases to law enforcement,' meaning showing extraordinarily high sums or multiple criminals."

"Cases are likely to multiply, said Constance Wilson, executive VP of Interthinx, which develops fraud detection tools for the lending industry."

"'The cases we’re seeing today are from 18, 24, 36 months ago, when the market was still good,' Ms. Wilson said. 'Now we’re going to see an increase in mortgage fraud, because all those loan officers, brokers and appraisers who were making six-figure incomes, now their back is against the wall. If that loan doesn’t close, they can’t make their home payment.'"

"'So you have a desperation cycle,' she said. 'There’s a lot of push for them originate volume.'"

The Union Tribune. "After more than a year of watching the real estate bubble pop and spatter over the economy, the Federal Reserve finally decided to pull the reins in on the mortgage industry."

"Under new guidelines, borrowers will have to prove they're making money before they can get a loan. What a radical concept! Lenders will be barred from making loans without first considering whether borrowers have enough money to pay them back. Amazing!"

"And get this: Lenders will also have to tell the truth about loans. Under the Fed's new rules, you can't advertise ultra-low 'teaser rates' for mortgages or issue loan documents for adjustable rates without clearly warning borrowers how high their interest payments might pop."

"Why didn't anyone think of that before? If the Fed had enacted those rules three or four years ago, many of our current problems could have been avoided. These rules are about three years too late to do much good in fixing the current mortgage crisis. And in today's lending environment, they seem hopelessly retro."

From Broker Universe. "As Boston was getting ready to celebrate another World Series victory, the mood at the Mortgage Bankers Association convention was pensive."

"MARK: The question on everybody's mind is when will we get to the bottom of the mortgage recession and how long will it take for the market to get back to a good, thriving, level of business?"

"BOB: I don't think we've addressed the option ARMs. We tend to talk about the resets on the 2/28s and 3/27s, but the option ARMs, we have a lot of those loans that are going to cap out in a little while too, and that is going to be a real nightmare."

"MARK: Can any of these borrowers be refinanced into a 30-year fixed? The rates for those loans are still extremely attractive."

"RON: The problem is the collateral. The value of the collateral has been declining before this whole thing started and I don't see that rebounding. A lot of the markets were overpriced to begin with - California, the Northeast, the Detroit area - those are going to be problem areas geographically for refinancing."

"RON: I think it is going to be a real problem, I think we are going to still see an increase in foreclosures. It will be like it used to be in the '80s in Houston where during the oil crisis people just walked away from their houses."

"MARK: Mailed in the keys. It wasn't an expression; it actually happened."

"BOB: The surprising thing was that 6% delinquency wasn't the amazing number but that 94% of the people whose houses were worth half of what they paid for them were still making their payments. That happens in Texas, now I don't know if in California we are going to have that same kind of customer."