"Over the time period stretching from mid-2003 to mid-2006, my selection process had selected companies in these sectors which returned a total of 4.8%. By July of last year, however, the process had rinsed mortgage lending and homebuilding out of the portfolio."
Further reading of the Journal article reveals that these guys simply couldn't accept slowing growth. So, they did what financial executives nearly always do in a slowing market- they cut standards and stoked higher-risk growth. Hand in hand with the mortgage banking industry, the homebuilding executives thought that that, as so many before them, could repeal the laws of Schumpeterian dynamics, and continue to grow their revenues and unit volume forever. Soon, these companies began to resume practices they swore off some years ago, including buying large amounts of land, instead of optioning it, as they claimed they had, prudently, now learned to do.