Danielle DiMartino writes at the Dallas News. "For an idea whether the housing market is in for a soft landing or something a lot nastier, take a look at the performance of home equity loans. Last week, Moody's Investors Service reported that the delinquency rate in the home equity loan market rose 11 percent for the quarter ended in April from the same period a year earlier."

"'This is the 11th consecutive month that the home equity delinquency growth rate has risen,' Moody's Ben Garber said."

"To give you an idea how quickly the market turned, the delinquency growth rate was falling at a 27 percent annualized rate in the quarter ended May 2005. In the space of 11 months, we've rotated from vast improvement to sharp deterioration. According to Moody's, delinquent loans now represent nearly 7 percent of the total existing pool of home equity loans."

"For homeowners who are missing payments on their home equity loans, it boils down to what home prices have done for them lately. The biggest irony is that the rampant borrowing will exacerbate home price declines."

"'The home price drop-off has been aggravated by the rising inability of current and potential homeowners to fulfill loan obligations,' Mr. Garber said. 'The rising rates of these delinquencies portend a period of nominal home price deflation, the extent of which will determine whether or not the U.S. economy will be able to experience a soft landing.'"

From Bloomberg. "Fannie Mae and Freddie Mac have enjoyed an advantage over other financial institutions because of their government ties. Their charters give the Treasury the authority to buy as much as $2.25 billion of their securities in times of distress."

"Fannie Mae and Freddie Mac 'were on pace to basically absorb the entire mortgage market,' said Scott Simon, at Pimco."

"Competitors complained about the preferential treatment. Fannie Mae and Freddie Mac fought back, hiring 46 lobbying firms in 2003 to influence Congress, more than any other company or group, a nonpartisan group in Washington that tracks spending. The money helped stall legislation in 2003, 2004 and 2005 that would have created a tougher regulator."

"The 'old political reality was that we always won, we took no prisoners and we faced little organized political opposition,' Daniel Mudd, then Fannie Mae's chief operating officer, wrote to then CEO Franklin Raines in November 2004."

"U.S. 'financial markets would be safer if these asset and associated risks were broadly redistributed,' said Emil Henry, the Treasury's assistant secretary for financial institutions. 'Past history reminds us that serious financial problems at' Fannie Mae and Freddie Mac 'are not only a possibility but an unfortunate reality,' said Henry."

The New York Times. "Default rates are inching up, credit ratings agencies have become more cautious and regulators have threatened to crack down on loose lending standards. Yet investors increased their exposure to the securities."

"Mortgage-backed securities, the biggest sector of the bond market, have been critical in fostering the long housing boom. But there is the potential for growing strain in the close relationship between homeowners and their financial patrons."

"In June, default rates on subprime mortgages, loans made to people with poor credit, increased to 6.88 percent of securitized loans from 5.49 percent a year earlier. Another report released yesterday showed that in the second quarter home prices rose at their slowest pace since the fourth quarter of 1999."

"'If something really bad happens, you are not going to take any U.S. financial institutions out,' said Scott Simon at Pimco. 'What you will have is you will lose liquidity in the mortgage market.' And 'that could happen at a time when the homeowner needs it the most,' he added."

"Guy Cecala, president of Inside Mortgage Finance, worries that investors may not be fully prepared for what could be coming. 'We have never had a mortgage-backed market where a third or more of the product is subprime or has potential credit problems. If something does go wrong, you will see a lot of things being impacted.'"