Some housing bubble news from Wall Street and Washington. Dow Jones Newswires, "Coast to coast, Lennar Corp's potential buyers see different scenery, but they might encounter the same kitchen faucets. The nation's second-largest home builder is whittling down options, seeing standardization and simplification as tools in a cost-cutting drive aimed at saving millions of dollars and surviving the housing crash. Other home builders are taking similar steps."

"With margins razor thin and builder stocks in tatters - one index has them down more than 55% in the last year - saving money has gained urgency."

"'When you can raise prices every Monday morning, like it was during the boom time, it's hard to get the organization's attention on something as mundane as lowering cost,' said Pulte CEO Richard J. Dugas Jr. 'The whole process has started to unlock dollars at every turn.'"

Gannett News Service. "If you'd asked housing economist David Seiders at this time last year to forecast the real estate industry's future, he would have told you to expect 'a recovery year' in 2008. 'That outlook has been cut dramatically from what I was saying a year ago,' Seiders, chief economist for the National Association of Home Builders, concedes."

"An even more pessimistic economist, David Rosenberg at Merrill Lynch, goes so far as to warn, 'Real estate pricing in general can expect to be in the doldrums through 2012.'"

"The biggest problem is the glut of homes for sale - more than 10 months' worth. And about 2 million of those homes (about 2.6 percent) are vacant, with banks or builders trying to get them off their hands."

"Meanwhile, many would-be buyers are having trouble qualifying for a loan. Half of senior loan officers surveyed by the Federal Reserve in October said they had tightened their standards from July."

"'A lot of (buyers) haven't come to the realization that the subprime market no longer exists,' said Ritch Workman of Workman Mortgage in Melbourne, Fla. 'Mortgage brokers are turning away more and more borrowers.'"

The Pioneer Press. "Homebuyers beware - the noose is tightening on zero-down-payment home loans in the Twin Cities. With portions of the area now flagged as a declining market, lenders are curbing 100 percent financing to adhere to lending rules set by mortgage-buying giants Freddie Mac and Fannie Mae."

"Lenders admit they now are more reluctant to approve zero-down loans for fear that they will get stuck with them. Dan Arrigoni, president of U.S. Bank Home Mortgage, estimates that about 40 percent of borrowers who qualified for no-money-down loans a year ago would get them today."

"'Now most of Fannie and Freddie's underwriting is automated,' Arrigoni said. 'If it pops out to be a reject or a caution, that's where both agencies say 'Well, use your judgment.' But if we use our judgment and they don't like it, we have to buy it back.'"

The Salt Lake Tribune. "Zions Bancorporation lifted its forecast for write-downs linked to real estate collateralized debt obligations by 16 percent to $109 million in the quarter in a regulatory filing late Dec. 31."

"The company, which announced a previous set of write-downs on Dec. 19, also identified a further $40 million in charges on securities purchased from Lockhart Funding LLC. Zions, which operates in 10 Western U.S. states, bailed out Lockhart by buying $840 million in assets at a loss as the investment vehicle has difficulty raising short-term debt known as commercial paper."

"'They never thought this would be much of a problem until very recently,' Manuel Ramirez, senior VP of equity research at Keefe, Bruyette & Woods, said in an interview. 'They've got quite a bit of exposure to real estate markets in a pretty challenging part of the country: California, Arizona, Nevada.'"

The Toledo Blade. "Huntington Bancshares Inc. said yesterday that ties to a subprime mortgage investment company will slice $276 million from fourth quarter profit."

"Franklin Credit was a customer for 17 years of Sky Financial Corp., which Huntington acquired in July for $3.1 billion."

"About three-fourths of Franklin Credit’s business involves buying home loans typically made by lenders who misplaced key documents or applied rules too loosely. The balance of its business is tied to making subprime loans to borrowers with relatively low credit scores."

The Miami Herald. "An internal audit last March warned the State Board of Administration, which invests local government money, that it should have a risk management committee to monitor its investments."

"The audit also listed Lehman Brothers as one of five large firms that the agency relied too heavily on when buying securities. Seven months later, the Local government Investment Pool sustained a run as some of its investments turned sour. More than half of the ailing investments were sold to the state by Lehman Brothers."

"Meanwhile, as a growing number of Florida municipalities expressed anxiety over when they will be able to withdraw more money from the fund without a penalty, state board officials said at a meeting Thursday in Tallahassee."

"At the meeting, Lee County Schools Superintendent James Browder urged the agency to provide more liquidity quickly. 'I have people in my school district who are starting to ask the question, 'Jim, What did you do with our money?'"

"State auditors, who have been directed to investigate what went wrong, are looking to hire an outside auditing firm and legal counsel."

The St Petersburg Times. "Even as the State Board of Administration on Thursday tried to reassure investors about the future of its Local Government Investment Pool, problems deeper in the past came to light."

"Last year a handful of...brokers sold the state's money managers investments in mortgage-backed securities that quickly ran into trouble. Thursday, investors found out the withdrawal limit is expected to increase to 21 percent by the end of this month and about 26 percent by the end of February, but they did not get a promise of the full refund they are demanding."

"'The state of Florida absolutely needs to step up; this is a disaster,' said Robert Wishner, deputy mayor of Sunrise."

The Boston Globe. "Securities investigators for Secretary of State William F. Galvin have opened a probe of Merrill Lynch & Co.'s dealings with Springfield after the city lost nearly $13 million in investments that Galvin said were too risky for municipalities."

"The investments, backed by home loans, plummeted in value amid the ongoing subprime mortgage disaster. Worth nearly $14 million last year, Springfield's investment today is worth just $1.2 million."

"'We're interested in the documents that exist, the e-mails and communication records,' Galvin said by phone yesterday. 'We want to know who got paid. Then we can start to unravel the question: How did the City of Springfield find itself in this predicament?'"

"Springfield officials have blamed Merrill Lynch, saying the financial firm improperly invested city funds in risky instruments. The Springfield Finance Control Board issued a statement yesterday saying it...'believes that Merrill Lynch can and should be held fully accountable for any potential losses.'"

"'From what I know today, Merrill Lynch is accountable and responsible for this and will be obligated to fully pay the citizens and taxpayers of Springfield all the money involved here,' said Chris Gabrieli, who joined the Springfield Finance Control Board as chairman in June."

"Galvin said his office is investigating a similar case in Maine, involving a Quincy-based Merrill Lynch broker. He said his office is helping determine whether the broker advised a public retirement entity to invest $20 million in a fund that was later frozen."

"'These type of investments have been problematic, not just for cities and towns but across the board,' Galvin said. 'They're often marketed as 'like bonds,' which have a connotation of being very secure, quality investments.'"

The New York Sun. "The number of class action lawsuits filed against Wall Street firms surged in the last year, fueled by the meltdown in the subprime mortgage market, according to new research published yesterday."

"There was a 43% jump in the number of securities fraud class action lawsuits last year to 166 suits — 100 of which were filed after the mortgage crisis hit, the study by Stanford Law School and Cornerstone Research found."

"'I think we're going to see more litigation coming out of the subprime crisis,' a partner at law firm Bernstein Litowitz Berger & Grossmann, Gerald Silk, said." "The finance sector led the way for class action suits, with 47 Wall Street firms sued in 2007, more than four times the number sued in 2006."

"New York City itself has gotten into the lawsuit game, with the city's retirement and pension funds for city workers filing lawsuits against mortgage lender Countrywide Financial Corp., claiming the lender misrepresented the risk of its mortgage-backed securities."

"'I think you're going to continue to see impaired assets being written off by companies, and investors claiming that those writedowns should have been taken earlier, and that the valuations were not accurate when disclosed,' Mr. Silk said."

"He is representing New York-based publisher Unisystems Inc., which is suing State Street Corp. for investing its retirement funds in the risky mortgage market."

The New York Post. "A shake-up at giant money manager State Street over its contaminated junk mortgage paper could unleash a new flood of lawsuits against Wall Street firms for peddling risky, subprime mortgage assets."

"State Street - the world's biggest manager and overseer of institutional money pools and trusts of the wealthy, in all totaling $2 trillion - yesterday said it fired asset management chief William Hunt, and set aside $618 million for an expected legal battle ahead."

"Securities lawyer Jake Zamansky said investors are suing firms for 'lack of disclosure about the risk of the subprime assets, and possible fraudulent sales presentation, calling them conservative when they weren't.'"

From Bloomberg. "U.S. regulators, concerned brokerages may have sold clients money-losing securities tied to subprime mortgages, are seeking information about how the investments were marketed, a person familiar with the situation said."

"The Financial Industry Regulatory Authority, which polices about 5,100 brokerages, sent letters Dec. 14 to more than a dozen firms that sell collateralized mortgage obligations, a type of security linked to home-loan payments, said the person, who declined to be identified because the inquiry isn't public."

"Mounting losses from securities tied to home loans are prompting regulators to examine how Wall Street firms valued and promoted the products. CMOs cut up payments from pools of home loans to create bonds that offer a variety of characteristics, known as tranches, based on income and risk."

"Finra's Web site warns that the products should be reserved for 'sophisticated investors' who are 'prepared to do a lot of homework.'"

"Finra and other U.S. regulators have opened a growing number of inquiries as they seek to understand the extent of Wall Street's culpability behind investor losses on mortgage-backed securities."

"The Securities and Exchange Commission is focusing on issues including how banks valued mortgage-backed securities, how promptly they disclosed losses and whether executives at lenders dumped shares before loan defaults surged."

From Newsweek. "One of the nice things about being a billionaire, or a private-equity magnate, or the CEO of a gigantic bank is that you don't fret about paying retail. If you see an object you desire—a plane, a mansion, a car, a suit—you don't wait for it to go on sale. You just buy it."

"But efforts to catch such falling knives depend on perfect timing....Today, several savvy financial operators who tried to catch falling knives in the formerly hot housing and credit sectors are walking around with huge gashes in their hands."

"On Aug. 22, Bank of America decided things couldn't get worse for Countrywide Financial, the massive mortgage firm whose stock had been halved since the beginning of the year. Bank of America boldly announced a $2 billion investment. In the months since then, Countrywide, stung by a deteriorating housing market, has fallen another 50 percent."

"Bank of America, which is already licking its wounds from an ill-timed plunge into investment banking, is already out several hundred million dollars on its investment in Countrywide."

"In the fall, Bear Stearns, the mortgage-dependent Wall Street firm that soared to dizzying heights as the credit market boomed only to crash back to earth, attracted an international cast of falling-knife catchers."

"In September, Joseph Lewis, one of Britain's wealthiest men, spent $860 million on a 7 percent stake in Bear, paying an average of about $107 per share, according to the Wall Street Journal. In December, he boosted his stake twice. Today, with Bear's stock trading at close to $85, Lewis has turned his massive fortune into something slightly smaller."

"In October, Bear agreed to a complicated deal with CITIC Securities, in which the Chinese firm would invest $1 billion in Bear Stearns for a stake worth at least 6 percent. Since then, Bear's stock has fallen about 20 percent."

"On Dec. 10, Warburg Pincus—a very sharp private-equity firm—agreed to invest up to $1 billion in struggling bond insurer MBIA, which had lost 55 percent of its value in the previous two months. Within days, as MBIA dealt with questions about its exposure to collateralized debt obligations and other exotica, the company's stock plummeted."

"In less than two weeks, Warburg lost nearly 30 percent on its investment in the shares, or about $183 million."

"Of course, it's early days, and these investments could well turn out to be genius moves. The housing bubble popped, but between October 2006 and October 2007, according to the Case-Shiller index, housing prices fell only 6.1 percent. Housing prices may need to fall 30 percent or 40 percent before they bottom out, but it will take years—rather than months—for that process to play out."

"And as the market continues to slump, companies whose business models rest on making mortgages—and on buying, selling, and insuring securities based on mortgages—may face a string of losses."