Some housing bubble news from Wall Street and Washington. "U.S. home builders started the fewest homes in nearly a decade last month, as housing starts plunged 14.3% to a seasonally adjusted annual rate of 1.408 million, the Commerce Department reported Friday. Starts were down 37.8% compared with January 2006, the largest year-over-year decline since early 1991."

"Also, building permits dropped to 1.568 million in January, 28.6% below the same month a year ago. The stunning drop in home construction indicates that builders are scaling back their plans on a massive scale."

"Starts fell in three of the four regions as tracked by the Commerce Department in January, as the Northeast enjoyed warmer temperatures and drier-than-normal weather in the first half of the month. Starts rose by about 9% in the region. Starts fell by 28% in the West, by 15% in the Midwest and by 12% in the South. Starts in the Midwest were at the lowest level since 1991. Starts in the West fell to the lowest level since 1996. It was the biggest drop in the West since 1979."

"There were 1.2 million homes under construction in January, down 14% from the previous January. 'There is still a considerable amount of new supply still hitting the market,' said Richard Moody, chief economist for Mission Residential."

"Two weeks ago, the Commerce Department reported that the number of vacant homes increased by 34% in 2006 to 2.1 million at the end of the year, nearly double the long-term vacancy rate. Economists said there about are 1 million excess homes."

From CNN Money. "Wachovia economist Phil Neuhart said that the report suggests that those who believed that there was a stabilization in home building, based on the strong December report, were pre-mature. 'We never thought we had found a bottom,' he said."

From Bloomberg. "In another sign of growing concern about mortgages made to high-risk borrowers, Standard & Poor's said it would no longer wait for homes to be foreclosed on and sold at a loss before alerting investors in mortgage-backed bonds that it expects to lower ratings on the bonds."

"S&P said Wednesday that it was considering downgrades on 18 low-rated bonds from 11 securitizations of mortgages last year amid early loan problems."

"'It is a watershed event' because it means S&P is now actively considering downgrading bonds within their first year, said Daniel Nigro, a portfolio manager at Dynamic Credit Partners, a manager of about $6 billion in hedge funds and collateralized debt obligations. 'We welcome them being more open' about their methods."

"S&P's warnings Wednesday were on bonds backed by so-called sub-prime and Alt-A loans, and by home-equity loans. Alt-A loans are defined as ones that fall only slightly short of the credit standards of Fannie Mae and Freddie Mac, the two largest U.S. mortgage firms."

"Borrowers are 60 days or more behind on payments on 11-month-old 2006 sub-prime mortgages that represent 8.2% of the loans' total original balances, Steven Abrahams, an analyst at brokerage Bear Stearns Cos., wrote."

"One of the bonds S&P warned about this week was backed by Alt-A mortgages. It was the company's first warning about any of those securities sold in 2006. Alt-A loans often are made with less proof of borrowers' pay, or are interest-only loans or 'option' adjustable-rate mortgages."

"'In terms of performance, I'd say there are equal concerns' about Alt-A loans and sub-prime loans at S&P based on early delinquencies, said Ernestine Warner, an S&P analyst. The Alt-A bond S&P warned about was issued by Calabasas-based Countrywide Financial Corp., the largest U.S. mortgage lender. Newport Beach-based Impac Mortgage Holdings Inc. made the loans."

From Business Week. "Countrywide and Washington Mutual face some risks from so-called 'recastings' of pay-option ARMs. Unlike fixed-rate loans, which have decades of underwriting data behind them, pay-option ARMs haven't been stress-tested in an environment where home-price appreciation is slowing, and even falling in some regions of the country."

"Roughly 28% of Washington Mutual's loans held are in these riskier option-ARM mortgage products, according to S&P analyst Stuart Plesser. By contrast, pay-option loans comprise more than 40% of Countrywide's interest-earning assets."

From MarketWatch. "A credit crunch in the market for low-end mortgages has left companies specializing in these subprime loans at the mercy of big banks like Merrill Lynch & Co. and J.P. Morgan Chase."

"In recent weeks, warnings from banking giant HSBC Holdingsand New Century have shaken subprime confidence further, sparking speculation that a major bank is aggressively making margin calls. Accredited Home Lendershas had to come up with more cash after getting margin calls from some of its warehouse lenders, Stuart Marvin, executive vice president at the subprime specialist told analysts during a conference call on Wednesday."

"'We have eight different warehouse lenders; I would say the majority of them are acting very rationally,' Marvin said. 'There is one that is acting somewhat irrationally, although I won't mention them by name."

"Industry publication National Mortgage News said this week that Merrill Lynch has been making margins calls. A Merrill spokesman declined to comment. In late January, J.P. Morgan CEO Jamie Dimon noted rising defaults in some of its riskiest home loans and said the bank had largely exited the subprime business."

The Wall Street Journal. "In recent months, as home-price appreciation fell and borrowers faced rising interest rates, more people defaulted on their mortgages. Under mortgage contracts, mortgage originators must often repurchase loans that default very early in their term or that come with underwriting mistakes, such as flawed property appraisals."

"'Following early payment defaults, we exercised our contractual rights to return loans to ResMae and protect our financial interests,' a Merrill spokesman said."

"A decline in the subprime housing loan market may force General Motors Corp. to refund its former financing arm, GMAC LLC, as much as $950 million, according to a Reuters story. A report by investment bank Lehman Brothers Inc. said the rebate is needed to 'shore up' GMAC."

"GM, which retained 49% ownership of GMAC, delayed the filing of fourth-quarter financial results because of unresolved issues concerning the balance sheet of GMAC’s mortgage unit at the end of November, ResCap unit."

The Economist. "Mortgages were written for a fee, sold to investment banks for a fee, then packaged and floated for another fee. At each link in the chain, the fees mattered more than the quality of the loans, which could always be passed on."

"'This was classic market failure,' says Anthony Sanders, a mortgage expert at Ohio State University's Fisher College of Business. 'The private sector wanted fees and got them, and they did not much care what happened afterwards.'"

From theStreet.com. "Many in the media have opined that the bears 'don't understand the conditions under which real estate markets collapse, and these conditions (suggestive of a broadening credit problem) are not present.'"

"It appears that the principal reason these observers are ignoring the subprime problem and its ramifications is that the equity markets are ignoring them. Ergo, it must not be a problem. This is the definition of a Goldilocks mindset (see no evil, hear no evil), not a Goldilocks scenario."

"There is an emerging credit crisis and it will lead to rapidly rising charge-offs. Construction lending on land and condominium loans are the next area to implode. As night follows day, the enormous securitization markets will shortly begin to demonstrate the same sort of delinquencies we have witnessed in subprime mortgage lending."

"Restrictive credit practices are just beginning to unfold as a consequence of the poor underwriting standards applied over the last decade."