Some housing bubble news from Wall Street and Washington. Reuters, "D.R. Horton Inc, the largest U.S. home builder, posted a wider first-quarter loss on Thursday, as sales fell by more than a third and new orders dropped 61 percent, reflecting the depressed U.S. housing market. Markets such as California, Las Vegas and Arizona, where builders once couldn't get enough land to fill demand, are now stone cold and weigh on the balance sheets of the companies."

"'I don't see a recovering California in the next 12 months,' Donald Tomnitz, D.R. Horton's CEO, said on an analysts' conference call."

"The results included land impairment and write-off charges totaling $245.5 million."

From CNN Money. "Donald R. Horton, Chairman of the Board, said, 'Market conditions remained challenging in our December quarter as inventory levels of both new and existing homes remained high while pricing remained very competitive. Lending standards continue to be more restrictive than during the previous year, and buyers continued to approach the home buying decision cautiously. We expect the housing environment to remain challenging.'"

"The Company's cancellation rate (cancelled sales orders divided by gross sales orders) for the first quarter of fiscal 2008 was 44%."

The Associated Press. "MDC Holdings Inc. said Thursday its fourth-quarter loss widened as the housing market slump deepened. The Denver company reported a loss of $281.1 million, or $6.14 per share. The result included charges of $175.2 million for asset impairments, $7.8 million for write-offs (and) $13.8 million on land sales."

"Revenue dropped 42 percent. Average selling price dropped 9.7 percent. Closings fell 39 percent."

"The company's operating loss in the West _ one of the hardest-hit regions where home prices plummeted in Arizona, Nevada and California, ballooned to $159.3 million. MDC swung to a loss in its Mountain and East regions as well, as sales swooned across the nation."

"Paris G. Reece III, MDC's chief financial officer, said, 'As has been the case in each of the last four quarters, the impairments this quarter primarily occurred in our West homebuilding segment, with more than 75% applicable to subdivisions in our Arizona, Nevada and California markets. Over the last six quarters, we have impaired approximately 60% of the 15,000 lots we owned at the end of our 2007 fourth quarter.'"

"Reece continued, 'Of the $727 million impairment charge we took during 2007, $556 million related to our land inventory, which decreased by almost 65% year-over-year. In our West segment, where 80% of the impairments in 2007 occurred, land inventory decreased by more than 75% during the year. California's land balance alone dropped by more than 90% in 2007, and most of the remaining $35 million of land is being held for sale to third-party developers or investors.'"

From MarketWatch. "M/I Homes Inc.'s fourth-quarter loss widened to $68.5 million, due to various charges totaling. Results from the latest quarter included land-related impairment and abandonment charges of $104.9 million, joint venture investment write-offs of $4.3 million and severance costs of $3.1 million, M/I Homes said Thursday."

"Pending sales of previously owned homes fell a steeper-than-expected 1.5 percent in December, pointing to more dreary conditions for the beleaguered housing market, a real estate trade group report on Thursday showed."

"The National Association of Realtors Pending Home Sales Index, based on contracts signed in December, a key gauge of future home sales activity, dropped to 85.9 from 87.2."

"In a fresh sign that the nation's housing crisis will worsen, home prices are likely to decline in 2008 for the second straight year, the NAR said Thursday."

"The Realtors, in its monthly economic and sales outlook, is forecasting a 1.2% drop in prices of existing homes sold this year. Only a month ago, the association was forecasting that prices would be flat in 2008 and that the home market would rebound in the last half of the year."

"The group was forecasting that the first quarter would see a record 5.3% drop from year ago levels. Now it's expecting the current quarter to see even a larger decline in prices of 6.1%."

"The group is also forecasting a 4.8% decline in the number of existing homes sold this year. A month ago it was still forecasting a 0.9% pickup in the sales. Existing home sales plunged 12.8% in 2007, according to the group's figures."

"'We're seeing a pattern that is consistent with skimming along the bottom of the cycle, and sales could ease modestly,' said Lawrence Yun, the group's chief economist, in a statement."

"The Pending Home Sales Index fell 1.5% to 85.9. That was better than only the record low of 85.5 set in August."

"The Realtors have been recently lowering their price and sales forecasts with each monthly update. The group still has a more bullish view of the market than other outside forecasts."

From Realty Check. "In their never-ending quest to put a positive spin on the housing market, the Realtors today changed the way they report their annual housing forecast."

"Usually, they just put the current year’s predictions of sales and prices and then the following year’s predictions."

"This month they divided the current year into two parts, saying that existing home sales would run at an annual rate of 4.9 million units and then rise 'notably' to 5.8 million units."

"This prediction is based on an assumption that Congress, as part of the stimulus package, will raise the GSE loan limits."

"The increased share of housing debt taken on by Freddie Mac and Fannie Mae during the housing slump has put the two government sponsored enterprises at risk, it was charged Thursday."

"The two outfits are 'reducing risks in the market, but concentrating mortgage risks on themselves. These risks are beginning to take their toll,' said James Lockhart, director of the Office of Federal Housing Enterprise Oversight, which regulates Fannie and Freddie."

"The two government sponsored entities (GSEs) saw the housing debt they and the Federal Home Loan Banks carry grow by 16 percent to $6.3 trillion, more than the total public debt of the United States, according to Lockhart."

"'The conforming market supported by Freddie Mac and Fannie Mae is the only well-functioning segment of the mortgage market,' said Richard Syron, CEO of Freddie Mac. 'We're experiencing greater losses as house prices decline, but that is not surprising since this is the market we were created to support it.'"

"And Daniel Mudd, Fannie's CEO agreed. 'Our business is meeting the increased demand for liquidity and our overall credit book has held up relatively well,' he said. 'Yes, these are tough times, but that is when you want a Fannie Mae.'"

"'[GSEs] have become the system for secondary mortgages,' said Senator Richard Shelby, and that creates a risk to the general economy."

"Democrats sought to expand the role of Fannie Mae and Freddie Mac in affordable housing and the subprime market on Thursday as a proposed increase in the companies' conforming loan limit ignited some protest from Republicans."

"Congress is considering allowing Fannie and Freddie to buy bigger loans as part of an economic stimulus package. The idea drew fire from Richard Shelby, the committee's top Republican."

"'Once again, instead of thinking of ways to further protect the American taxpayer, we are actually considering ways to further expose them for the benefit of those making healthy six-figure salaries,' Shelby said Thursday."

"Exelon Corp., one of the largest U.S. power companies, disclosed Thursday it owns securities backed by subprime mortgages in the company's investment trusts."

"The falling value of these investments could require Exelon to contribute additional funding to the trusts, which support the company's pension plan and the future cost of shutting down nuclear power plants, Exelon said."

"The disclosure, contained in Exelon's 2007 report to the Securities and Exchange Commission, highlights how widely subprime investments sold by Wall Street banks have found their way into global investment pools."

"'Due to recent market developments, including a series of rating agency downgrades of subprime U.S. mortgage- elated assets, the fair value of these subprime-related investments may decline,' Exelon said."

"A review by Moody's Investors Service of the top ratings of bond insurers is taking time because 'we're taking a great deal of care to get the answer right,' Moody's Chief Credit Officer Andrew Kimball said on Thursday."

"Ratings agencies are under fire for failing to signal risks in mortgage-backed securities and in structured deals that include them, which had previously been considered very safe and in many cases held top 'AAA' ratings."

"Kimball added that there is 'hysteria' in the markets over the expected cumulative losses from subprime residential mortgages, but at the end of the day no-one really knows how large they will be, saying 'it's a crapshoot,' he told a conference organized by the New York Society of Security Analysts."

"Kimball said that rating agencies, like markets, have been susceptible to 'group think,' and 'fashionable think.'"

"Had the rating agency stepped back from its analytical models and looked at residential mortgage backed securities with its gut feeling, it may have been better able to predict the market downfall, he added."

"'I have to believe we could have done better,' he said."

"The woes in the U.S. financial sector are 'poetic justice' for bankers who designed and sold complex investments that have since gone sour, billionaire investor Warren Buffett said."

"Buffett appeared to see irony in the fact that many of the banks who marketed complex investments which have now crashed are bearing much of the fallout."

"'It's sort of a little poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end,' he said."

"He added: 'What has happened is a repricing of risk and an unavailability of what I might call 'dumb money,' of which there was plenty around a year ago.'"

From Bloomberg. "The estimated 1 million homeowners with $500 billion of option ARMs are beyond the help of interest-rate cuts by Federal Reserve Chairman Ben S. Bernanke. While subprime borrowers face an average increase of 8 percent or less when their adjustable-rate mortgages reset, option ARM homeowners may see their monthly payments double after their adjustments kick in."

"'We call them neutron loans because they're like a neutron bomb,' said Brock Davis, a broker with U.S. Express Mortgage Corp. in Las Vegas. 'Three years later the house is still there and the people are gone.'"

"Once option ARM borrowers' loan balances reach a predetermined limit, called a negative amortization cap, usually 110 percent to 120 percent of the mortgage amount, their payment rates immediately increase."

"'These could be called long-fuse, exploding ARMs,' said Kathleen Keest, former assistant Iowa attorney general. 'I've heard people say they are the most complicated product ever offered to consumers. They are the real liar loans.'"

"The loans accounted for 8.9 percent of the almost $3 trillion in U.S. home loans made in 2006, up from 8.3 percent in 2005, according to Inside Mortgage Finance."

"One in five option ARMs packaged into bonds last year covered more than 90 percent of the home's value and required no proof of a borrower's income, according to UBS AG, Europe's largest bank by assets. Two percent required no down payment at all from the borrower, the analysts said."

"Delinquency rates on option ARMs tend to be low in the early years, misleading some investors to think they will remain safe, said Sean Kirk, a debt trader at Seaport Group LLC."

"Sophisticated borrowers can take out option ARMs and avoid problems, said Ira Rheingold, executive director of the National Association of Consumer Advocates. It's just that mortgage sellers marketed them to people who didn't understand the terms and couldn't afford them, he said."

"'It was used to cheat people,' Rheingold said. 'It helped artificially keep housing prices higher than they should have been.'"

"Joe Ripplinger took out a $184,000 mortgage in 2006 and makes his payments every month. Now he owes $192,000."

"The 66-year-old Minneapolis house painter has a payment- option adjustable-rate mortgage. It allows him to write a check for $565 a month even though he owes $1,300. The difference is added to the mortgage, and when his total debt reaches $212,000, or after five years have passed, he said his monthly minimum could jump to about $2,800, which he can't afford."

"'We're barely making it right now,' Ripplinger said. 'I never heard of a payment-option ARM before. We thought they were putting us on a 30-year fixed.'"

"Andrew Laperriere, managing director of (a) New York-based research firm, estimates that 85 percent of option ARM borrowers owe more than their original loan balance. 'The problem is, you can refinance an option ARM to a 30- year conventional loan at a 5.5 percent interest rate, and you're still looking at your payment going up 150 percent,' Laperriere said. 'That's pretty ugly.'"

"About $460 billion of adjustable-rate mortgages are scheduled to reset this year, with the next spike in resets coming in 2011, when $420 billion in mortgages will adjust to new interest rates for the first time, according to New York-based analysts at Citigroup Inc."

"That's the year that Joe Ripplinger's interest rate will jump, provided he doesn't reach his negative amortization cap before then. 'It's the worst thing we could have done,' he said."