KB Home (NYSE:KBH) shares moved up marginally on the day after the company filed its 8-K with the SEC. The document provided some additional information into just how hard these companies were hit with the subprime mortgage collapse. KB Home said that their first quarter results reflected a sharp downturn in the housing market that began in 2006 and that continues to pressure the sales and profit margins of domestic homebuilders. The company continued saying that their revenues and margins were being pressured by intense competition and pricing pressure among homebuilders and other participants in the marketplace. Moreover, they expect these conditions to continue through at least the remainder of 2007 adding that it would be hard to predict when the housing market will stabilize. Finally, commenting on the subprime collapse, the company noted that these recent problems in the subprime mortgage market combined with tightening credit requirements (now being discussed by lawmakers) could exacerbate the already-difficult conditions in the homebuilding industry. During a conference call, the company noted that about 13% of their mortgaes for the company's homes were financed with subprime loans. Meanwhile, the major concern is that many of the markets have a large overhang of resell inventory that hasn't cleared the market - these supply/demand issues have yet to be sorted out.

Federal regulators are just now cracking down on who's to blame for the subprime mess. Many people insist that while Federal regulators have tightened standards for making loans to subprime borrowers, standards still decline and the volume of loans has surged. Perhaps the main reason for this is the fact that approximately 52% of subprime mortgages originated from companies with no federal supervision - that is mortgage brokers and stand-alone finance companies. An additional 25% were made by finance companies that are units of bank holding companies, which are indirectly supervised by the Federal Reserve. In fact, only 23% of all subprime mortgages fall directly under Federal regulatory control.

Fed Reserve Governor Susan Bies told the Wall Street Journal, "What is really frustrating about this is [federal regulators] don't have enforcement authority to do anything with these state-licensed, stand-alone mortgage lenders." Meanwhile, industry supporters say that the system is working perfectly. Doug Duncan from the Mortgage Bankers Association commented, "Market discipline in this industry is swift, can be severe, and is more effective in changing lending practices than any potential changes in regulation." So, while this situation unfolds we'll have to wait and see exactly how subprime mortgage volume adjusts itself. But in the meantime, it appears as if housing companies will continue to suffer in the aftermath of these defaults.

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