The president of the European Central Bank signaled that it would likely raise its interest rates next week in a bid to keep inflation in check.

Housing: Look out below

In other economic news, new home sales dropped 40.3 percent in May from a year ago and 2.5 percent from April, the WSJ says on A2 and the NYT inside its Business Day section. Inventories increased to 10.9 months from 10.7 months, and median prices fell 5.7 percent to $231,000.

Manufacturing orders were flat in May. The Journal:

“A flat number after two consecutive monthly declines is hardly a sign of vibrant growth,” said Wachovia economist Tim Quinlan. “Businesses are scaling back.”

What it sowed, Countrywide reaps

Countrywide was sued not only by Illinois, as expected, but also by California and was hit by legal action from a Washington state agency, the Journal reports on A3.

The paper says the California suit is “particularly notable” because Countrywide does so much business there. Interestingly, that lawsuit found that option adjustable-rate mortgages, where borrowers just pay the interest on their notes, had profit margins of 4 percent, compared to the more-conservative Federal Housing Administration loans, which made the lender just 2 percent.

The Los Angeles Times says California Attorney General Jerry Brown says the company used marketing to trick borrowers into taking the loans, whose consequences—a sudden, sharp rise in monthly payments down the line that many couldn’t afford—they didn’t understand.

The Journal says it’s just going to get worse for the disgraced lender. Connecticut says it will probably file suit, something the paper says will be “part of a second wave of civil actions.”

All states are seeking restitution for borrowers. If the states can persuade the courts to grant restitution, it “could be a staggering blow against Countrywide,” said Kurt Eggert, a law professor at the School of Law at Chapman University, in Orange, Calif. “Countrywide could be required to give back its profit on all those loans and conceivably give back houses on which it has foreclosed.”

The Seattle Times says the Washington legal action says Countrywide discriminated against minorities by charging them more than whites of “similar circumstances” were charged. Some got higher rates even though they had better credit scores.

Meantime, Countrywide shareholders voted to approve the buyout offer from Bank of America. But, surely, after lying down with a dog, BoA can’t now complain about fleas.

More chickens return home to roost

The Journal says General Electric is having a hard time attracting bidders for its big credit-card unit that’s up for auction.

The paper says that’s because investors are worried about debt-laden consumers’ finances and whether they’ll be able to afford their credit-card payments in the downturn. JPMorgan Chase recently backed off a bid, and other big credit-card companies like Citigroup and Capital One are unlikely to bid because of problems in their own units.

Seems like if GE really thinks its $30 billion credit-card business is going to be ok, it would yank it off the market, which isn’t going to give much for it right now. But its bad-debt rates are high:

In May, GE charged off 8% of the loans in the portion of its securitized credit-card portfolio, up from 5.17% in May 2007, according to data compiled by Keefe, Bruyette & Woods, a boutique investment firm that specializes in the financial-services industry. The monthly data filed by card issuers don’t comprise the complete portfolio, but typically are regarded as a fair representation of its performance. Some 4.82% of the portfolio was more than 30 days’ delinquent, up from 4.05% in May 2007.

Zell if he knows

Real estate and now newspaper tycoon Sam Zell is unsurprisingly going to the well to help ease Tribune Company’s crushing debt burden.

Zell said he may sell the Tribune Tower in Chicago—one of the country’s great buildings— and unload the headquarters of the LAT.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.