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Moody's just put Lennar, Pulte and Centex on negative watch for downgrade to junk status. For those who read my earlier posts, non-investment grade entities cannot participate in swap agreements with investment grade entities through the banks to fund the mortgage special purpose companies. In addition, Centex's warehouse credit line expires this month (the credit line that they use to fund mortgages to sell their homes),

and somehow I doubt they will be able to find a replacement. For those who thought the homebuilders will be reaching a bottom soon --- Now, the party begins... They will be saddled with the depreciating assets and increasingly unfunded debt burdens that are throwing the mortgage bankers out of business just when the housing market spiral starts to accelerate downward. Pulte homes relies on their internal financing for almost 100% of their home sales. This is going to get much uglier and I foresee insolvency for more than a few. Despite what I see (and I have been wrong before) the home builders rallied yesterday and are definitely off of their lows.