Some housing bubble reports from Wall Street and Washington. "Cracking down on exotic mortgages that have exploded in popularity in recent years, U.S. regulators told banks Friday that they've got to make sure that borrowers can actually pay back the full amount of the mortgage."

"'The agencies are concerned that some borrowers may not fully understand the risks of these products,' the five banking regulators said in a statement Friday. In particular, banks were told not to offer loans that would require the borrower to sell the home or to refinance the loan in order to make the full payment. Such 'collateral-dependent' loans are typically prohibited as unfair or deceptive."

"Exotic loans should generally not be offered to borrowers with limited or no down payment, the regulators said."

"'The agencies expect a borrower to demonstrate the capacity to repay the full loan amount that may be advanced,' the regulators said, including any additional interest or principal that may accrue."

"Wall Street analysts ahead of final guidance warned that the rules would temper consumer demand for the 'affordability products' that are also favored by investors in the $6.5 trillion market for mortgage-related securities."

"'It seems likely the rules will have sufficient bite to cause some adjustments in the types of loans being offered in the mortgage marketplace,' analysts at UBS Securities LLC said in a Tuesday note. 'That could have some serious repercussions for lenders, as well as for homeowners seeking to refinance their affordability loans.'"

The Christian Science Monitor. "The biggest trouble lies with the adjustable loans that begin with artificially low interest rates. An analysis estimated that $368 billion in adjustable-rate mortgages originated in 2004 and 2005 are at risk of default because of this pattern."

"'This translates into 1.8 million families that are at risk as a result of the possibility of default and another 500,000 that are likely to go into foreclosure,' Allen Fishbein of the Consumer Federation of America said last week at a Senate hearing on nontraditional mortgages."

"Experts on both the pessimistic side and the optimistic side agree on one thing: The impact of the ARM adjustments will occur over several years. 'It's a time release,' says Christopher Cagan, who did the risk analysis at First American Real Estate Solutions. 'It's not a single impact like Pearl Harbor.'"

From Bloomberg. "Consider the bloated inventory of homes for sale and compare the performance to previous housing slumps, says Joe Carson, director of global economic research at AllianceBernstein."

"'Since the start of 2005, the inventory of unsold new homes has climbed 29 percent, while the stock of unsold existing homes is up a staggering 82 percent,' Carson says. 'During the sharp, protracted housing downturn of the early 1990s, these inventories actually declined, helping to cushion prices.'"

"Cancellations are rising, and they aren't being captured in the aggregate statistics because of the way the survey is designed. Hence, sales are being overstated and inventories understated."

"'Once a sales contract is signed, there's no way of recording the cancellation or putting the home back in inventory,' says Dave Seiders, chief economist at the National Association of Homebuilders in Washington. 'Builders keep track of gross and net sales; we don't have a net sales number from Commerce.'"

"The Census Bureau, which is one of the Commerce Department's statistical agencies, counts an initial new home sale: Sales go up and the 'for sale' inventory is reduced. If the sale is canceled, it isn't reflected in revisions to previous months. What happens? When the home is 'resold,' statisticians ignore that transaction."

"The effect of higher cancellations is 'to overstate the overall level of sales and understate the level of inventories,' Carson says. What makes the current situation so worrisome is the 'unprecedented inventory overhang, encompassing new and existing markets and many of the largest metropolitan areas,' Carson says. 'Its sheer size raises the odds that prices will fall more and longer nationwide than they did in the 1990s.'"

From MarketWatch. "Banc of America Securities said Friday it expects pending home sales to decline between 3% and 4% in August from the previous month after its monthly survey of real estate agents revealed disappointing traffic trends."

"'Lower pending contracts in August should lead to weaker existing closings in September and October, as contracts precede closings by 30 to 60 days,' wrote analyst Daniel Oppenheim."

"A.G. Edwards analyst Gregory Gieber estimates the inventory overhang of new homes in the 190,000 area. 'Hence, before one can even start to think about any improvement for home builders with regard to pricing and profitability, a large inventory drop is required and that in turn will likely require yet additional gross margin declines of a meaningful magnitude,' Gieber said."

"'Residential construction is officially in recession, as the home-building stocks predicted long ago,' wrote Merrill Lynch North American Economist David Rosenberg in a report Friday."