Some housing bubble news from Wall Street and Washington. Bloomberg, "A $7,000 income tax credit to anyone who buys a foreclosed property, further undercutting your asking price, (is) part of a deal that includes $29 billion in tax cuts through 2010 that are intended to give the battered housing market a boost. U.S. Senate leaders agreed to it on April 2. More than $25 billion would be handed out to homebuilders over a three-year period in the form of rebates of income taxes paid during the height of the housing boom."

"'These tax provisions will keep property values up, keep folks in their homes, and keep businesses afloat, and those are all keys to handling the housing crisis,' Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said in a statement."

"No, they're not keys to handling the housing crisis. At best, they would be a waste of taxpayer money. At worst, they might delay some of the adjustments that have to occur before the housing market can stabilize."

"The $7,000 credit, which would be paid over two years, is as likely to depress values as to prop them up."

"The problem for homebuilders is that during the boom they geared up to construct more than 2 million new housing units a year. That included stockpiling land, increasing their workforces and constructing many houses on speculation."

"Today, only about half that many homes are being built and sales have plunged. If anything, allowing losses to be carried back an extra two years could work to slow down the needed industry shakeout."

"As a Finance Committee statement said on April 2, 'Homebuilders and other housing sector businesses particularly need cash to prevent layoffs, to avoid selling land and houses at distressed prices, and simply to shore up their lagging bottom lines.'"

"Avoiding the sale of land and the inventory of unsold new homes is exactly the wrong thing to encourage. Reducing the overhang of new homes is the real key to establishing a bottom for the industry."

The Wall Street Journal. "Do the political math. The Mortgage Bankers Association tracks 46 million mortgage borrowers, and 42 million are paying on time. More than 20 million households own their homes outright and, having worked for years to pay for them, probably don't want to pay for someone else's. Neither do 35 million renters who didn't take a flyer on nicer digs."

"The Senate Banking Committee, chaired by Connecticut Democrat Christopher Dodd, held the first of what are sure to be many hearings last week on the government's role in connection with the near-collapse and ultimate acquisition of Bear Stearns Cos. by JPMorgan Chase & Co."

"Isn't there an inherent conflict of interest? Congress has oversight responsibility for financial regulatory agencies. At the same time, the members represent business constituencies dedicated to opposing rules and regulations that get in the way of their profits."

"As for Dodd, he's no piker when it comes to raking it in from the financial industry. Finance, insurance and real estate companies chipped in $13 million in campaign contributions since 1989, according to the Center for Responsive Politics."

"As a group, members of the Banking Committee received a total of $29.3 billion in the 2003-2008 election cycle from those industries and related political action committees."

"Among the ideas floated by Treasury Secretary Hank Paulson last week in his blueprint for regulatory reform was for the Fed to become a kind of uber-cop."

"But if Fed policy makers can't identify an asset bubble until after it has burst (by their own account), how can they anticipate the next threat to the financial system?"

From Reuters. "Former Federal Reserve Chairman Alan Greenspan has defended himself from charges that easy U.S. monetary policy created the current credit crisis by inflating a housing bubble, and instead blamed professional investors."

"'The U.S. bubble was close to median world experience and the evidence that monetary policy added to the bubble is statistically very fragile,' Greenspan wrote."

"'The core of the subprime problem lies with the misjudgments of the investment community,' he wrote. Subprime-mortgage securitisation exploded because it appeared misspriced and there were few delinquencies and defaults, 'creating the illusion of great profit opportunities.'"

"Lenders were then pressed by securitisers for mortgage paper 'with little concern about its quality.'"

"Greenspan also said he doubts tightening of regulation would have solved the problem. 'The problem is not the lack of regulation but unrealistic expectations about what regulators are able to prevent,' he wrote."

The Dallas Morning News. "Credit score experts have bragged about the way the all-important three-digit number is able to predict a consumer's likelihood of repaying a loan. But did they fail to screen subprime mortgage applicants properly?"

"'The FICO score is based on their existing credit accounts,' said Craig Watts, Fair Isaac spokesman. 'That's where the lenders went astray. They thought the FICO score could anticipate additional risk that an exotic mortgage was going to bring to an individual's credit risk. That's not what the FICO scores do.'"

"Lenders were using the credit scores 'as a way of pricing the risk, but they really weren't an indicator of how well those loans were going to perform,' Mr. Fishbein said."

"Dallas mortgage banker Craig Jarrell believes in the FICO scores. 'I don't think they failed at all,' said Mr. Jarrell. 'They [subprime borrowers] had bad credit, and they got a loan anyway.'"

"The lenders who made those loans ignored the fact that the borrowers with poor credit shouldn't get a home loan. Blame that mindset on the fact that the lenders could just pass the risk to investors who were eager to snap up high-yielding securities backed by subprime loans."

The New York Times. "Almost all mortgage applicants had to sign a document allowing lenders to verify their incomes with the Internal Revenue Service. This includes the so-called stated income mortgages, affectionately known as 'liar loans.'"

"So while borrowers may have misrepresented their incomes...lenders had the tools to identify these fibs before making the loans. All they had to do was ask the I.R.S. Instead, lenders appear to be complicit in the rampant fibbery."

"Mike Summers, VP for sales and marketing at Veri-tax Inc., in Tustin, Calif., knows plenty about this. His company handles the filing of these verification forms with the I.R.S. on behalf of lenders and loan originators. He began selling the service to lenders in 1999 and said he was surprised at the reaction he received — like that of a skunk at a garden party."

"'In 2001, I was going around the subprime world trying to get them to sign up,' Mr. Summers recalled. 'Ameriquest, and others I don’t want to name, just didn’t want to know because it would kill the deals. The attitude was don’t ask, don’t tell.'"

"Can investors stuck with losses on these loans sue to recover their investments based on this due-diligence failure? 'Investors hoping to put back the loans for deficient underwriting under reps and warranties would end up going back to the originators,' said Josh Rosner, an authority on mortgage-backed securities. 'Given that many of these lenders are out of business, ultimately this could come back to the bank or investment bank.'"

"'The general view is this should not be talked about out loud,' Mr. Rosner added."

"Wall Street will certainly battle forcefully against such lawsuits, if investors bring them. But its role as one of the great enablers in this mortgage debacle is something that even Wall Street can’t deny."

The Orange County Register. "A small group of former mortgage workers were huddled around a table last month, talking about the dire condition of the industry that had employed them."

"'I always assumed that the industry would be there,' said Dave Kleiman, 48, who started at age 18 in what is now called subprime lending and most recently was a senior manager at Saxon Mortgage in Foothill Ranch, which shut down in February. 'There's nothing left to rebuild now.'"

"Jon Daurio is a former Ameriquest executive who founded subprime lender Encore Credit Corp., which was bought in 2006 by Bear Stearns Cos. He's doubtful the local subprime industry will ever be what it was before last year's crash."

"'It's not coming back, and if it comes back, it's not going to be the same way, and it's definitely not going to be on the profit structures that we had,' he said."

"What fueled the recent boom for subprime lenders was securitization. Wall Street firms bought mortgage loans from lenders, packaged them into securities, and sold them to investors. It was a great business for a while. In 2004 and 2005, with home prices nationally rising at an annual rate of around 15 percent, subprime borrowers largely stayed current on their mortgages."

"That led to riskier subprime lending, more securitization, more profits for lenders and investors."

"'It was all based on the idea that house prices couldn't go down,' said Dana Johnson, chief economist for Comerica Bank. 'And of course, they did, and it was that that set in motion all of the defaults. You had people who had no skin in the game.'"

"The question for the mortgage industry, then, is will securitization come back? Or, barring that, will investors at least resume buying mortgages to hold?"

"'I don't see Wall Street coming back anytime soon in terms of the risk appetite for underwriting subprime mortgages to the extent that we did,' said Ricardo Chance, a managing director with KPMG Corporate Finance LLC in Costa Mesa who previously worked for investment firms."

"For many investors, the condo hotel may go down as the Pets.com of the real-estate bubble. Many buyers purchased the hotel rooms from developers hoping to get paid every time the room was rented."

"But condo hotels, which account for as much as 10% of all hotel rooms under construction and a much greater percentage in resort markets such as Orlando, Fla., and Las Vegas, are coming back to haunt many of the people who bought the units, the developers that constructed the buildings, and the operators hired to run the hotels."

"Some projects also are being brought to the attention of regulators by investors."

"'It's been a very bad investment,' said Moji Adekunbi, who bought a $550,000 condo-hotel unit in the Signature at the MGM Grand in 2005 in Las Vegas, where one of every four hotel rooms being developed is a condo-hotel unit."

"Mr. Adekunbi counted on the cash flow from renting out his unit more than covering his $3,000-a-month mortgage payment, leaving him with a tidy profit."

"He said the developer's sales staff led him to believe that the hotel would have 94% occupancy and $350-a-night rates, Turns out, he said he is netting only between $400 and $1,800 a month before his mortgage payment."

"'I am in so much debt. I don't know how long I can sustain this,' Mr. Adekunbi said. Making matters worse, many markets for these rooms are weak, meaning owners might lose much of their investment if they sell."

"During the real-estate boom, many Americans scrambled to buy anything they could -- office condos, warehouse condos and high-rise residential condos, which are crowding the skyline of cities such as Miami."

"Developers loved condo hotels. 'It minimized the upfront risk to the developer, and shifted it to the individual unit owners,' said Mark Lunt, a lodging analyst at Ernst & Young. Many developers said they insisted that buyers regard condo hotels as vacation homes that they would use rather than income-producing investments."

"In Florida, a group of buyers is suing WCI Communities Inc., claiming the developer sold them condo hotels in the waterfront Resort at Singer Island as unregistered securities. The buyers said they bought the units as investments, not primarily for their own use."

"A few buyers are talking to the SEC, alleging possible securities fraud, according to their attorneys. One issue could be whether developers sold these units as investments, which should have been registered with the SEC or other regulators."

"Many developers were careful not to market condo hotels as investments, but 'many others find it difficult to restrain themselves from creating expectation of investment returns and cash flow,' said Rob Webb, a senior hospitality partner in (a) Cleveland law firm. 'All you have to do is find the developer's newspaper ads, and it could be a devastating blow.'"

"Michael Trombley, a retired major-league pitcher who lives in Fort Myers, Fla., is one of several investors who have filed lawsuits alleging securities laws were violated in the sale of units in the Clearwater Cay Club in Clearwater, Fla."

"'They were always trying to preach to people that the market is hot. This is a no-brainer. You'd better get in quick,' said Mr. Trombley."

"In 2005, Mr. Trombley, along with five friends and family members, bought five units in the development for a total of about $2.2 million, according to his attorney, taking out loans to finance the entire purchase price."

"Mr. Trombley estimates the four units he holds are worth at best 40% of the original purchase price, he said. Carrying costs, meanwhile, are running about $14,000 a month."