The Wall Street Journal is reporting Two More Builders Buckle.

Two more home builders have filed for Chapter 11 bankruptcy protection in the face of declining home sales and troubled credit markets.

Oakridge Homes LLC in California and M.W. Johnson Construction Inc., which builds homes in Minnesota, Wisconsin and Florida, both sought Chapter 11 protection Friday. The companies are two of many home builders in bankruptcy proceedings, including Levitt and Sons LLC and Tousa Inc.

M.W. Johnson, of Lakeville, Minn., reported assets and debts in the range of $50 million to $100 million in its bankruptcy petition and said it has between 200 and 999 creditors. The home builder’s affiliate, M.W. Johnson Construction of Florida Inc., also filed for bankruptcy.

Oakridge Homes didn’t state in court papers whether it intends to reorganize or liquidate its assets during its stay in Chapter 11. An attorney for the company didn’t return a call seeking comment by Tuesday afternoon. Oakridge, of Valencia, Calif., listed assets and debts in the range of $10 million to $50 million in its bankruptcy petition.

Cascade Of Bankruptcies

In the grand scheme of things, the amounts here seem small. However, dozens of subcontractors will not get paid and hundreds of subcontractor employees will not get paid. To anyone not getting paid this is a big deal. Numerous people are headed for bankruptcy over this and some small regional bank or creditor is going to going to take a very big (for them) hit over this. These things all add up and they are adding up all over the country.

We have yet see one of the huge national builders blow sky high, but we will. And we have not seen a large regional bank blow up yet either but we will.

Ambac To Terminate Contract With Fitch

In other news, Bloomberg is reporting Ambac Financial to Terminate Fitch Ratings Contract.

Ambac Financial Group Inc., the second-largest bond insurer, is terminating its ratings contract with Fitch Ratings.

“Our decision to refocus and realign our business around our core expertise in the public finance and infrastructure sectors has led us to re-evaluate our ratings needs,” New York- based Ambac said today in a statement. “As part of this review, we have asked Fitch to remove its ratings on Ambac and all its subsidiaries effective immediately.”

Ambac’s request follows one by rival MBIA Inc., which in March asked Fitch to stop providing a financial strength rating on its insurance unit. Bond insurers lost their top ratings after straying from backing municipal bonds, which rarely default, to guaranteeing securities such as collateralized debt obligations, which package pools of securities, including those backed by subprime mortgages, and slice them into pieces of varying risk.

The Point Is Moot

Since Ambac’s guarantee is worthless, there is not going to be much if any new business for Fitch to rate. And as for getting back to “core expertise” (assuming Ambac has any which I highly doubt), I have to ask: What good is expertise when your business model is dead and you have no customers?

One final point: The equity markets have finally realized that Ambac and MBIA have a date with Zero but the ramifications of the inevitable downgrade of hundreds of municipal bond issues has certainly not been felt …. yet.

Mike “Mish” Shedlock
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