Some housing bubble news from Wall Street and Washington. MarketWatch, "Bank of America Corp. said Friday it's purchasing Countrywide Financial Corp. for $4 billion. The stock-swap deal will put an end to the independence of the troubled California lender headed by Angelo Mozilo, and represents an increase from the bank's August investment of about $2 billion. 'We believe this is the right decision for our shareholders, customers and employees,' said Mozilo."

From Reuters. "Mozilo pushed the once dominant U.S. mortgage lender into a liquidity crisis by relaxing lending standards on risky subprime loans. In 2006, Countrywide originated $461 billion worth of loans. Nearly $41 billion of that activity was in the subprime market."

"Early in the housing downturn, Mozilo said Countrywide would take advantage of the situation by expanding its market position. In May, Mozilo and many other leaders in the mortgage industry still seemed to be in denial over the depth of the subprime lending crisis. He said that he planned to add 2,000 sales jobs. But that boast fizzled."

"He was in no mood for soul-searching about what went wrong as industry executives gathered in Manhattan for a Mortgage Bankers Association conference. 'You've got to be careful here about blaming ourselves too much,' Mozilo told the gathering."

"The real culprits, he argued, were the Federal Reserve and its series of interest rate hikes, crooked real estate speculators, falling housing prices and regulators' attacks on interest-only and other risky subprime mortgages."

"Unmentioned by Mozilo were the industry's loose lending policies and mortgage products such as 'liar loans,' which gave borrowers money at higher rates without verifying their income."

"But last April, in a speech in Beverly Hills, California, Mozilo conceded Countrywide lost its compass and chased risky customers as competition in that market increased. Names like Ameriquest, New Century, NovaStar Financial and Ownit Mortgage Solutions set a new lowered standard, changing the rules of the game, Mozilo said."

"'Traditional lenders such as ourselves looked around and said, 'Well maybe there's a (new) paradigm here,' Mozilo said. 'Maybe we've just been wrong. Maybe you can originate these loans safely without verifications, without documentation,' Mozilo said."

The New York Times. "As the mortgage mess grows, we are learning more and more about just how sloppy things were in the mortgage-issuing business as loans were churned out, carved into securities and sold off."

"Judges have blocked some foreclosures with rulings that purchasers of mortgages could not prove that they owned them. The buyers of the mortgages complain that it is unfair to ask them to have complied with detailed rules."

"And now the banks are begging the accounting rule makers to allow them to ignore a rule that has been on the books for almost 15 years. They explain that they never had any idea that they would have to restructure a lot of home mortgages, and thus had no reason to develop systems to deal with the accounting for such restructurings."

"'No one anticipated a day when potentially hundreds of thousands of residential mortgage loans would be modified,' said Alison Utermohlen, an official of the Mortgage Bankers Association who has led the effort to get the accounting rules relaxed."

"But the plea that the banks never saw it coming does ring true. In this cycle, those who lent the money thought that they had no reason to concern themselves with whether it would be paid back. Instead, they planned to sell the loans, usually to trusts that would then finance the loans by issuing securities. Such trusts have different accounting rules."

"In any case, the banks seem to have shared the general belief that house prices would always go up, so anyone unable to meet mortgage payments could sell the house. If losses are never going to appear, why prepare to deal with them?"

"Now home prices are falling in many areas. The risks of owning mortgage securities began to become apparent last spring, and the securitization markets virtually shut down by summer."

From Business Week. "It's no coincidence that states with the largest shares of adjustable-rate mortgages—Nevada, California, Arizona, Florida, and Colorado—are also among the states with the highest levels of foreclosures."

"But just because a state has a low exposure to ARMs doesn't mean it is immune to high foreclosure rates."

"Take Texas, for example. Home prices in the Lone Star State are low and, as of November, 2007, only about 12% of mortgages were ARMs. But it ranked 14th in the nation for foreclosures."

"David Zugheri, co-founder of First Houston Mortgage in Houston, blames aggressive lenders who he said would qualify almost anyone during the building boom. Developers were putting up houses farther and farther away from metropolitan areas, where land was less expensive, and filled the homes with subprime buyers, Zugheri said."

"'I blame the builders who needed to unload their product and the nonprofessional loan officers,' Zugheri said. 'Everybody was putting loans together just to get them sold. We were treating the housing market like a used-car lot.'"

"The problems are more dire in Florida. Lower- and middle-class families who bought houses with no-money-down, adjustable-rate mortgages are seeing their payments triple, says Jane Bolin, an attorney and managing partner of a South Florida property management company."

"'Every community that at this time last year had no homes in foreclosure, now [has] three or four,' Bolin said."

"Delinquencies have started to pick up for so-called option ARMs, which allow prime borrowers to decide every month on the amount they'll pay: a 30- or 15-year fixed rate, an interest-only payment, or a lower minimum payment. About 75% of borrowers are opting for the minimum payment, according to Standard & Poor's."

"Subprime borrowers not only started with higher rates than prime buyers, they sometimes were approved for loans they couldn't afford even at the teaser rate once taxes and insurance costs were factored in, said Keith Gumbinger, VP of (a) mortgage-research firm."

"'It is certainly not out of the realm of possibility that even without resets some of the borrowers who took out these loans are ill-prescribed for homeownership,' said Gumbinger. 'They may have taken them because they're stretched.'"

National Public Radio. "Walk around parts of Baltimore's Reservoir Hill and you can see the mortgage credit crisis up close and personal."

"A year ago, you had to dodge the construction crews that were bringing the neighborhood back to life. But now it's like a movie set, says city housing chief Paul Graziano: 'You know, where you walk through and some horrible event occurred and all of a sudden there's nothing. There's no life. There's just nothingness.'"

"Nothing but empty houses and for-sale signs. The people who bought these houses can't afford to finish or keep them."

"The leaders of Baltimore are so mad, they're going to try to hold one of those subprime lenders responsible for the mess. This isn't about lenders discriminating by denying credit to borrowers because they are black."

"Mayor Sheila Dixon believes that Wells Fargo has been doing just the opposite in Baltimore – that lenders have been targeting borrowers for credit on unfair terms because they are black."

"'You know, years ago we talked about redlining. …Now we're talking about reverse redlining,' Dixon says."

The Plain Dealer. "Cleveland Mayor Frank Jackson took aim at Wall Street on Thursday with a lawsuit against 21 major investment banks that he said have enabled the subprime lending and foreclosure crisis here."

"The one-of-a-kind suit, filed in Cuyahoga County Common Pleas Court, accuses venerable institutions such as Deutsche Bank, Goldman Sachs, Merrill Lynch and Wells Fargo of creating a public nuisance."

"Jackson contends the companies irresponsibly bought and sold high-interest home loans. The result: widespread defaults that depleted the city's tax base and left entire neighborhoods in ruins."

"'To me, this is no different than organized crime or drugs,' Jackson said in an interview with Plain Dealer reporters and editors. 'It has the same effect as drug activity in neighborhoods. It's a form of organized crime that happens to be legal in many respects.'"

"Cleveland's suit is even more unique because the city has based its complaints on a state law that relates to public nuisances. The suit also is far more wide-reaching than Baltimore's in that it targets the investment banking side of the industry, which feeds off the mortgage market."

"Jackson and city Law Director Robert Triozzi said Cleveland should have been excluded from the frenzy. They pointed to housing prices that remained relatively flat as real estate values jumped elsewhere, as well as a manufacturing downturn and widespread poverty."

"The suit claims that even though these issues were well documented, investment bankers continued to feed loans to hungry investors at the expense of borrowers buried in interest."

"'Ultimately, they're responsible,' Triozzi said of the investment banks. 'They knew the economic conditions in which they were operating here. They decided that didn't matter.'"

"Judge Corrigan will have to decide 'how far up the food chain' to go in determining responsibility, said Cleveland State University Law professor Kathleen Engel, an expert on mortgage-backed securities. She believes the city can make a case against the investment bankers."

"'These loans were defective products,' said Engel, co-author of 'Turning a Blind Eye: Wall Street Finance of Predatory Lending,' an article that appeared last year in the Fordham Law Review. 'They were continuing to finance products that they knew were defective and could have devastating consequences for the city of Cleveland.'"

"Ohio Attorney General Marc Dann also is considering a state lawsuit against investment banks. Dann said he is investigating 'some of the very same people' identified in the city's suit."

"'There's clearly been a wrong done, and the source is Wall Street,' Dann said in a phone interview. 'I'm glad to have some company on my hunt.'"