Some housing bubble news from Wall Street and Washington. Associated Press, "Sales of new homes plunged by a record amount in 2007 while prices posted the weakest showing in 16 years. The Commerce Department reported Monday that sales of new homes dropped by 26.4 percent last year to 774,000. That marked the worst sales year on record, surpassing the old mark of a 23.1 percent plunge in 1980."

"The median price of homes sold in December was $219,200. That was down 10.4 percent from a year ago, the biggest 12-month price drop in 37 years. It would take 9.6 months to eliminate the backlog of unsold new homes at the December sales pace, the longest stretch of time since the month's supply stood at 10.3 months in October 1981."

From CNN Money. "This decline probably doesn't accurately capture the weakness in prices for new homes, as about three out of four builders have reported having to pay buyers' closing costs or offer other incentives in order to maintain sales."

"Prices have been driven down by the glut of new homes on the market. The report showed a record 195,000 completed new homes available at the end of the period."

"The weakness in prices made buyers reluctant to jump into the market, even if the availability of financing was not an issue. The number of new homes bought with cash fell nearly 24 percent, while mortgages guaranteed by federal agencies such as the Federal Housing Administration or the Veterans Administration fell 16 percent."

From MarketWatch. "Inventories don't include homes thrown back on the market due to canceled sales. The inventory of completed homes now represent nearly 40% of the homes on the market, the biggest percentage ever, up from 21% during the heart of the boom two years ago."

"November's sales pace was revised to 634,000, down from the 647,000 reported earlier. Large downward revisions to the data have become common."

"In December, sales of homes costing more than $400,000 fell fully 50% compared with a year earlier -- likely a reflection of how difficult it has become to qualify for a jumbo mortgage."

"'A lousy end to a lousy year,' summarized Richard Moody, chief economist for Mission Residential."

"The average sales price fell a record 11.5% to $267,300 compared with December 2006."

The Philadelphia Inquirer. "The average new-home price, which peaked at $329,000 in March, had slipped to $293,000 by November, according to Census Bureau data."

"Ryland Group reported a 10 percent drop in its average sale prices, and a 30 percent drop in sales, in its 2007 earnings report Friday. 'Ryland is in a position to weather this storm,' CEO R. Chad Dreier told investors in a conference call. Dreier offered a 'silver lining': It's getting cheaper to buy vacant lots."

"Will new-home prices keep dropping? For lower-priced homes, 'demand is probably being affected by affordability,' said Fred Cooper Sr., spokesman for Toll Bros."

The New York Times. "A company that analyzed the quality of thousands of home loans for investment banks has agreed to provide evidence to New York state prosecutors that the banks had detailed information about the risks posed by ill-fated subprime mortgages."

"Clayton Holdings, a company that vetted home loans for many investment banks, has agreed to provide important documents and the testimony of its officials to the New York attorney general, Andrew M. Cuomo, in exchange for immunity from civil and criminal prosecution in the state."

"The investment banks pooled the mortgages into securities, often by blending loans from different lenders. Information on those mixed pools was then delivered to the rating agencies, which assigned the securities a score. Pension funds and other big investors bought them because they had triple-A ratings."

"But investment banks did not give the rating agencies their due diligence reports, and it appears that the agencies did not demand them, people familiar with Mr. Cuomo’s investigation said."

"In January 2007, Clayton briefed at least one credit rating agency about the exception reports it was producing, the person involved in the agreement said, but the credit firm did not ask to see the reports."

"Last week, the CEO of Moody’s Investors Service pointed the finger at investment banks. The executive, Raymond W. McDaniel Jr., said in reference to the information the company received, 'Both the completeness and veracity was deteriorating.'"

"Chris Atkins, a spokesman for Standard & Poor’s, said the firm was not responsible for verifying information provided to it by the issuers of securities."

"In November, Fitch Ratings published a detailed review of 45 loans in an effort to identify what went wrong as mortgages were turned into securities. It found extensive inaccuracies and fraud. The firm noted that many of the problems would have been easy to identify by looking at loan applications, appraisals and credit reports — but it appears that such review was either never done or ignored."

The San Francisco Chronicle. "At least two GOP senators have expressed opposition to the proposed yearlong increase in conforming loans limits, arguing that the government should first establish a new regulator with the power to reduce the $1.5 trillion mortgage holdings of Fannie Mae and Freddie Mac."

"Complicating the debate are the substantial financial losses that both Fannie and Freddie have racked up during the mortgage meltdown. In light of such problems, Sen. Richard Shelby, the senior Republican on the Senate Committee on Banking, Housing and Urban Affairs, said it's imperative to increase control over Fannie and Freddie before allowing the companies to take on additional risk."

"'Doing so in the absence of such a process enables thinly capitalized entities with recent accounting problems to provide a high-risk benefit to the wealthiest Americans without any real consideration of the need to do so or of the risks it presents to the taxpayer,' Shelby spokesman Jonathan Graffeo said in an e-mail."

The Arkansas Democrat Gazette. "While Arturo Reyes Jr. sits in jail on charges of harboring illegal aliens, his wife and co-defendant, Silvia Reyes, is under federal detention at their home — a brick house with a soaring foyer and a soccer goal in the yard."

"There’s also a hole dug for a backyard pool. That’s a project that may have to wait."

"The Reyeses’ plans were upended last month when immigration agents raided the family business, Acambaro Mexican restaurants. Prosecutors are not only mounting a criminal case but also moving to seize the Reyes home and other properties that they call the fruits of the illegal labor the Reyeses allegedly used in their restaurants."

"Largely overshadowed: The bank that holds the mortgages. Arvest Bank, based in Bentonville, is one of few the banks in Northwest Arkansas where an illegal alien can hope to get a home loan."

"Arvest lent the Reyes family more than $ 2 million for houses and restaurant properties that government prosecutors are now moving to seize, mortgages on file at the Benton County courthouse show."

"In each case, the bank made the loans to Arturo Jr. and Silvia Reyes, who prosecutors have identified as illegal aliens, the documents show."

"Arvest Bank Group Inc. spokesman Jason Kincy...said mortgages extended to borrowers without Social Security numbers make up a 'very small' portion of Arvest’s mortgage portfolio and that the bank complies with all federal rules on mortgages."

"'We’re well within the regulations to make those loans,' Kincy said."

"Arvest, owned by the Walton family of Bentonville, is only following a path that federal banking laws and regulations plainly set out, Kincy said. He said the bank’s policy is also in keeping with its efforts not to discriminate."

"'We don’t have an aggressive push to go after those loans,' he said. 'But as customers come to us, that’s an option we can provide.'"

From CBS News. "It sounds complicated, but it's really fairly simple. Banks lent hundreds of billions of dollars to homebuyers who can't pay them back. Wall Street took the risky debt, dressed it up as fancy securities, and sold it around the world as safe investments."

"It sounds like a shell game or Ponzi scheme; in some ways, it was a house of cards rife with corruption, greed, and negligence."

"Developers started turning asparagus fields into subdivisions, and lenders handed out free money to anyone who wanted to buy. 'What do you mean by free money?' correspondent Steve Kroft asks Jim Grant, one the country's foremost experts on credit markets."

"'I mean free money. I mean you had to apply not to get a loan, almost. Sometimes you have to apply to get a loan, you almost had to apply not to get one,' Grant says."

"'When you opened your mailbox in 2004, 2005, you could barely -- people were pressing on you, if you were not institutionalized, all matters of schemes in which to expand your personal debt and mortgage debt. You could, and people did, borrow more than 100 percent of the price of a house with the most fragile of financial bonafides,' Grant explains."

"Jerry Abbott, who runs the Coldwell Banker office in Stockton, California, says it didn’t concern the borrowers, many of whom were getting mortgages for more than their houses were actually worth. 'They were getting loans in excess of 100 percent of the value of the property,' Abbott says. 'That type of thing. So, most of 'em were actually putting a little bit of money in their pocket at close of escrow.'"

"'So, they were getting paid to buy a house?' Kroft asks. 'They were getting paid to buy a house. Yes. Yeah,' Abbott says."

"And strangely enough, it didn't seem to bother the lenders either, who were collecting huge fees just for landing the loans. 'Whatever they wanted to state for their income. The bank accepted that at face value and made the loan based on that income,' Abbott says."

"'Bonds marked triple-A are now quoted at 50 cents to the dollar, 40 cents on the dollar. Some of them, much less,' Grant says. 'Some of them are worth nothing on the dollar. Nothing on the dollar. This is the worst thing that has happened to Wall Street in a long time,' Grant says."

"The day Kroft went along, there were two busloads checking out houses that are now 70 percent cheaper than they were when the crisis began. The consensus seemed to be prices are going to drop still further. Not particularly encouraging news for the past two chairmen of the Federal Reserve Board."

"'Alan Greenspan and his successor, Ben Bernanke, would say over and over that it's contained. The problem's contained. It turns out, it is contained only on planet Earth,' Grant says, laughing. 'That's it.'"

"The central bank's dramatic three-quarter of a percentage point rate cut last Tuesday was the equivalent of shoving a pacifier in a crying baby's mouth. And that only stopped the whining for a little bit."

"Dallas Federal Reserve president Richard Fisher, speaking in Philadelphia on the same day that Bernanke was giving his blessing to an economic stimulus package during testimony on Capitol Hill, made some interesting remarks that the market pretty much ignored."

"He warned that the Fed still has only two mandates, fostering price stability and supporting economic growth. Keeping the markets happy is not a new third mandate."

"'Our job is not to bail out imprudent decisionmakers or errant bankers, nor is it to directly support the stock market or to somehow make whole those money managers, financial engineers and real estate speculators who got it wrong. And it most definitely is not to err on the side of Wall Street at the expense of Main Street,' he said."

"Most importantly, he stressed how crucial it is for the Fed to not go overboard in response to current doom and gloom headlines. 'We must be mindful that short-term fixes often lead to long-term problems,' Fisher said."

From USA Today. "The current housing recession is the worst his company has seen since 1974, Toll Brothers CEO Bob Toll says."

"Toll describes a builder's survival strategy: 'You concentrate on what's necessary to hold your business steady and prepare yourself to ride out the storm and take advantage of opportunities that must come. Then, as fast as you can, you go to concentrating on liquidity … (because) when you're out of money, you're out of Schlitz, you're out of beer, you're done. You must recognize that very fast,' says Toll."

"Toll didn't see it coming. Just before the market peaked in 2005, Toll predicted that boom-and-bust real estate cycles were over and that housing would continue a smooth upward climb. 'Prices will keep going up in double digits for years,' he told Fortune magazine."

"In hindsight, he says, 'We miscalculated the extent of the speculation that was taking place in the market.'"

"Toll and other builders tried to protect themselves from house-flipping investors. They made buyers sign contracts, promising they'd live in the home and not resell it for a year or two. But industrywide, these contracts were handled by a mortgage sales force paid largely on commission. Salespeople thus had a financial incentive to overlook suspect buyers."

"Toll also wrongly predicted at the end of 2006 that the industry's excess number of newly built homes sitting on the market would all be bought up in the spring selling season of 2007."

"'I said that?' he asks. 'So foolish.'"