Some housing news from Wall Street. "Home builder Ryland Group Inc. said Wednesday that its third-quarter profit fell 26% as sales incentives reduced earnings. Ryland said new orders fell 45.6% to 2,372 from 4,361 in the same period last year."

"'They're willing to take a volume hit but maintain pricing and margins,' said Josh Spencer, a research analyst."

"Banc of America Securities analyst Daniel Oppenheim said he expects to see land write-downs once Ryland responds to market conditions with lower prices. 'We expect weak 2007 earnings due to a sharply lower backlog at the end of the third quarter (down 35%) and lower margins as a result of price declines and a negative mix shift into lower margin regions (Texas) at the expense of the Southeast and West,' the analyst said in a report."

"Accredited Home Lenders Holding Co., a subprime mortgage lender, warned on Thursday that its earnings would lag its previous forecasts because of intense competition and rising loan delinquencies."

"'I think the outlook for the mortgage sector is not so good,' said Anton Schutz, president of Mendon Capital, which manages $270 million in financial services stocks. Lenders like Accredited that focus on borrowers with weaker credit face the risk of much higher defaults as well."

"'That segment of the economy is the first to crack when things slow down. I worry about subprime lending,' Schutz said."

"Accredited, the San Diego mortgage lender, warned of weak 2006 profits because competitors are offering cheap mortgages and debt investors have lost their appetite for subprime loans."

"The company cited several factors, suggesting 'increasing turbulence' and broad weakness in the subprime mortgage industry."

"Firstly, Accredited Home Lenders hasn't been able to issue as many mortgage loans as it thought it would. Secondly, investors who buy mortgage loans in the secondary market have grown skittish on risky debt, meaning the company earns less when it pools its mortgages into bonds."

"The company blamed a mergers and acquisition wave. Accredited Home Lenders said a wave of acquisitions has spurred lenders to issue loans without proper regard to prices or credit risk because the lenders want to maintain a hefty portfolio to look attractive to a potential suitor. This trend has boosted the 'ferocity of pricing competition' in the subprime mortgage industry, the company said."

"The company also warned more borrowers are defaulting on their mortgages, so Accredited Home Lenders will have to set aside more money than it expected to for loan loss reserves."

"'It will take some time for the industry to work through the current challenging environment, and it is more difficult than we thought,' Piper Jaffray analyst Robert P. Napoli wrote."

"Washington Mutual Inc., the largest U.S. savings and loan, said third-quarter profit declined 8.9%, as demand for home mortgages flagged and short-term interest rates climbed, the Seattle-based bank said."

"'The biggest risks for WM include aggressive competitive pricing and the possibility that credit trends could weaken significantly,' analysts Robert Napoli and Brian Hogan wrote, citing potential underwriting mistakes and falling home prices."

"Washington Mutual blamed part of the 9 percent drop on lower home mortgage demand and costs for the elimination of nearly 5,200 jobs."

"WaMu, as the thrift calls itself, eliminated 5,191 jobs in the quarter, and has cut 9,742 jobs, or 16 percent of its workforce, this year. The thrift is moving thousands of jobs outside the country."

"Many cuts were in its home loans unit, where the No. 3 U.S. mortgage lender posted a $33 million loss, compared with a $302 million year-earlier gain. Loan volume fell 34 percent to $37.2 billion and margins on loans sold declined."

"Net interest margin, the gap between what WaMu earns on loans and pays on deposits, fell to 2.53 percent from 2.65 percent in the second quarter. Many banks' margins have shrunk because short-term rates are higher than long-term rates, raising borrowing and deposit costs."

From Business Week. "Think of collateralized loan obligations as the next step of financial innovation that started with junk bonds and mortgage-backed securities. Unbeknownst to many, CLOs are pumping up the entire U.S. economy. By lowering borrowing costs and attracting foreign capital, they're helping to keep a lid on interest rates. But while financial innovations fuel booms, they also tend to worsen busts."

"The amount of leverage used in deals right now is greater than the previous record set in 1997, according to S&P. At the same time, loans are carrying lower ratings, with fewer safeguards, than at any time since the late 1990s. The worse mix suggests that in a recession on the order of the one in 1991, default rates would soar more than four percentage points beyond the record 12.8% set that year, says Martin Fridson of a research service."

"Similarly, CLOs are accepting more so-called second-lien loans. Like second mortgages, these are backed by borrowers' assets, but their claims on that collateral come second. 'Second liens could be the potential Achilles' heel of the current credit cycle,' says Mark Gold, co-founder of a CLO manager."

"'You've got classic cyclical behavior happening right now.' Gold, says: "If you look at the record issuance [of loans] that's been done, clearly you're setting the stage for record problems.'"