The Wall Street Journal on its Money & Investing cover looks at another shady practice of the credit-ratings firms—switching out analysts at the request of the companies whose debt they rate. Basically, important corporations who got too many questions raised about their debt issues, or thought they were rated too low, leaned on Moody’s, Standard & Poor’s, and the like to switch them to more favorable analysts.

The little-known practice could spur even more questions about whether bond issuers have too much influence over how their bonds are rated before being sold to investors. Critics claim that the longstanding practice of issuers paying for ratings gives them leverage that can undermine the independence of credit-rating firms.

Here’s a managing director of Moody’s, which is already in trouble after the Financial Times revealed this week new shenanigans with its debt ratings:

While switching analysts appears to be infrequent, there are situations “where an analyst doesn’t get the message that you’re expected to be responsive,” Bill May, a Moody’s managing director, said in an interview. The reasons can range from failing to return a banker’s phone call about a time-sensitive issue to missing deadlines.

That’s the At-Least-He-Admits-It Quote of the Day.

This is a fatally flawed business model, one whose rules need to be totally rewritten. Good work by the Journal and the FT this week in reporting on the industry. We need more stories like this.

Home sale price still heading south

A government measure of housing prices dropped to the lowest on record in the first quarter. The Office of Federal Housing Enterprise Oversight said home sale prices plummeted a seasonally adjusted 1.7 percent from the previous quarter and 3.1 percent from a year earlier.

The measure is conservative because it only looks at mortgages backed by the quasi-governmental Fannie Mae and Freddie Mac—meaning it doesn’t measure most of the subprime stuff stinking up the markets. The WSJ on A2:

Other nationwide indexes show steeper declines. The S&P/Case-Shiller index, which includes a broader variety of mortgages and which showed a nationwide drop of 8.9% in the fourth quarter from a year earlier, is set to release first-quarter figures next week.

“The OFHEO report shows the weakness in the housing market, but does not, in our view, fully portray the dire state of the market,” Lehman Brothers economist Michelle Meyer said in a note to clients.

Bloomberg writes that mortgage originations will fall 18 percent this year, according to a trade group. The Journal on A5 reports that Fannie and Freddie say they’re cutting interest rates on jumbo mortgages—those over $417,000 a year—months after Congress temporarily allowed them to buy the notes up to $730,000.

Feds bust California housing scam

California and the FBI said they busted a bizarre foreclosure scam that affected hundreds of homeowners, many of whom didn’t speak English, the Los Angeles Times reports.

At the heart of the alleged scheme were land grant transfers, used hundreds of years ago when the United States was still acquiring land from other countries. They are no longer recognized by any court or county assessor…

In San Diego, for example, the company attached a copy of a survey from the Spanish Land Grant of 1872 and told victims that the deed reinstated the land grant and would protect homes from foreclosure, the attorney general’s office said.

Gross likes Fannie and Freddie

Pimco’s Bill Gross, one of the smartest people in finance, is buying up mortgage bonds, the FT reports. But not the subprime “trash.” Gross says the government’s implicit backing of Fannie and Freddie, which it has stepped up in recent months, make them good investments. Mortgage bonds now make up 60 percent of the holdings in his fund, the world’s biggest. That’s up from 20 percent a year ago.

Is Lehman fudging its earnings to avoid Bear-like panic?

The WSJ’s Heard on the Street column focuses on a hedge fund manager who says Lehman Brothers is manipulating its earnings to stave off the panic that took down Bear Stearns.

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.