TransUnion said that serious delinquencies fell for the first time in three years in the first quarter, to 6.77 percent from 6.89 percent of all home loans. And Fitch said that for subprime loans bundled into mortgage-backed securities, the proportion of seriously delinquent mortgages fell to 45.2 percent in April, down from 46.3 percent last month but still up from 40.1 percent a year ago.

The statistics are particularly positive because neither depends much on the Obama administration’s extraordinary interventions in the housing market, whether via the Federal Reserve’s buy-up of mortgage-backed securities or the homebuyer tax credits. (Both do, however, depend on the country’s near-zero interest rates.)

That said, a Fitch analyst warns that the fall in delinquencies might be temporary, due to tax refunds rather than improving fundamentals. It also notes that while loan modifications are picking up, helping to ease delinquencies and foreclosures, there is a strong chance of redefault on modified subprime loans.

Congress doesn’t know what its next step will be in regulating Wall Street after the financial meltdown. But the House Oversight and Government Reform Committee accomplished an authoritative takedown today of the credit ratings agencies. Through documents obtained by the committee and unusually sharp questions from committee members, we learned this:

• During the housing bubble of 2002-2006, there was virtually no government regulation of the credit-rating agencies. The Securities and Exchange Commission proposed rules in 2002 to monitor them. That’s when bond issuers were securitzing subprime mortgages and collateralized debt obligations at ever increasing rates. By the time Congress finally passed a reform act, it was 2006 and the housing bubble was about to burst.

• The credit-rating agencies were even more tardy in responding to the housing market collapse than the SEC and Congress. Moody’s CEO Raymond McDaniel continually issued reassurances that the mortgage-backed securities and credit default swaps his firm was rating AAA deserved the rating.  Even privately, McDaniel only began to identify the problem in Sept. 2007.

A transcript (pdf) of a Moody’s “town hall” company meeting shows that McDaniel told his employees in September that it was time “to speak as candidly as possible about the subrpime market.” But the discussion mostly centered on “extensive outreach to the media” to disentangle the rating company from the subprime mess.

Just one month later, McDaniel wrote to his board of directors (pdf) that the company’s business model needed to have a “careful postmortem” evaluation.

• The credit rating agency industry is in tatters. Moody’s has been around for 100 years, but it wasn’t until the late 1970s that the company had to rely on the issuers of bonds for its profits. The obvious conflict of interest– will an issuer come back to a credit-rating agency if the agency unfavorably rates the bond?– finally caught up with the industry in the subprime mortage market.

None of the rating companies developed a credible model to rate mortgage instruments, and there was a race to the bottom to rate risky bundles of subprime loans as AAA.

“In my [Baltimore] district,” said Rep. Elijah Cummings (D-Md.), “students are not able to get loans, businesses are closing and seniors are going back to work. You’ve lost our trust.”

The CEOs didn’t respond to Cummings’ remarks or numerous other accusations that they have lost the public’s trust.

But it was clear that the credibility of an entire financial industry had been destroyed in just five hours.

The panel, and most lawmakers on the committee, seem to agree that the failures of the big three credit-rating agencies — Moody’s, Standard & Poor and Fitch– is about more than just “gross incompetency,” as Rep. Mark Souder (R-Ind.) put it.

Frank Raiter, managing director and head, from 1995-2005, of the Standard and Poor unit that rated residential mortgage-backed securities, said that the credit agency didn’t understand credit default swaps when he was there. “Intuitively, if you can’t explain what these things are to us [people whose job is to evaluate mortgage securities], it was real curious why the product was enjoying financial success.”

Yet S&P, which controls 40 percent of the credit-rating market, routinely gave the swaps AAA ratings. Internal S&P and Moody documents reveal that the companies knew their rating systems were broken but their continued business depended on rating these swaps. One Moody’s memo says that, ideally, investors would come to Moody’s based on “ratings quality” and “service.” But they were actually looking for a AAA rating. And if Moody’s couldn’t deliver, the investor would go to S&P or Fitch.

Sean Egan, managing director of Egan Jones Rating Co., said CRA executives felt compelled to capitalize on the brave new world of swaps. “It’s not incompetence,” he told the committee. “If you are the manager of this public company, it’s your job to increase revenues and profitability.”

The CEO’s of Standard & Poor, Moody’s and Fitch will testify this afternoon.

Since the federal government didn’t have authority to regulate the secondary mortgage market, it was up to the big CRA’s, like Moody’s and Standard & Poor’s, to judge if the bonds were investment grade.

But an investigation by the Securities and Exchange Commission this July revealed that the CRA’s didn’t know how to rate credit default swaps. So, partly in order to keep doing business with the subprime lenders and investment banks, the CRA’s between 2002-06 often just rated the securities and swaps “AAA,” the best rating a bond can have.

Today the CEO’s from the three top credit rating agencies — Moody’s, S&P and Fitch — are testifying before the House oversight committee. Rep. Henry A. Waxman, (D-Ca.) the committee chairman, just noted that these CEO’s earned more than $80 million — despite the fact they were a “colossal failure” in stemming the mortgage crisis.

Rep. Chris Shays (R-Conn.), meanwhile, concocted an elaborate analogy about how the CRA’s were referees paid off by the players.

Will the committee tie their oversight into the larger congressional fight over how to revamp Washington’s policing of Wall Street? Will the Republicans stay monomaniacally focused on Fannie Mae and Freddie Mac?

Stay tuned for updates.