Some housing bubble news from Wall Street and Washington. "Accredited Home Lenders Holding Co. reported a quarterly loss three times larger than Wall Street expected as more homeowners defaulted on mortgages. CEO James Konrath called Accredited's results 'dissatisfying,' citing a 'difficult credit environment.'"

"Subprime lenders are being battered by lower volumes, narrow margins and rising defaults. Accredited said on Wednesday it set aside $42 million more reserves at year-end than in September because delinquencies are rising, and investors are forcing it to buy back more soured loans."

"Lending volumes declined, as mortgage originations fell 18 percent to $3.87 billion."

"The company will not issue a 2007 earnings forecast, yet said market turbulence will persist through the year's first half. It expects loan volume to decline and origination costs to rise in the first quarter from the fourth quarter."

The LA Times. "Fremont General said Tuesday that it would stop making second, or 'piggyback' mortgages, that allow borrowers to use a second loan in lieu of a down payment when buying a home. The company said it could no longer sell the second loans at a profit because of the turmoil in the sub-prime business and investors' fear of defaults."

From Bloomberg. "Santa Monica California- based Fremont General stopped offering the programs because it can no longer sell the loans at enough of a profit, said Trude Tsujimoto, general counsel for Fremont Investment & Loan, which does the company's subprime lending."

"Most of the extra $1.8 billion HSBC will set aside to cover bad loans relates to subprime home equity loans, executives for the bank said. 'Where we believe that the first lien mortgagee will foreclose, and we're seeing a lot of that going on, we are then saying it's unlikely we'll get anything for the second lien,' HSBC CEO Michael Geoghegan said."

"Fremont in mid-2006 tightened lending standards for '80- 20' combo programs, where the second loan represents 20 percent of a home's value. About a quarter of subprime mortgages in 2006 involved combo programs, up from 16 percent 2004 and 1.3 percent in 2000, according to UBS AG."

"'The answer to solve everybody's problems was the 80-20s,' as the lending also allowed mortgage companies to help borrowers get into homes made less affordable by record home price appreciation in many states, said Jack McCleary, head of asset- backed trading for UBS."

"Fremont last month cut programs that allowed borrowers to put no money down without proving their incomes, put down less than 10 percent for properties sold without real estate agents or refinance loans already more than 90 days late."

The Financial Times. "A savage sell-off has swept through the credit derivatives market for sub-prime mortgages since HSBC and New Century Financial delivered a bitter pill to investors last week."

"'Shorting sub-prime credit has finally worked for the housing bears, finding its ultimate expression through the ABX index,' says Gyan Sinha, mortgage strategist at Bear Stearns."

"'Liquidity has (temporarily) evaporated from the ABX market and a ferocious sell-off has caught most of the market off-guard,' say Gary Jenkins and Jim Reid, analysts at Deutsche Bank. 'This is perhaps evidence that in the world of structured credit and leveraged positions, things can change very quickly if the facts change.'"

"The Deutsche analysts add the unknown risk is whether any investor in ABX products faces liquidation pressure elsewhere in their portfolios. 'As a minimum, the conclusion we draw from this recent (and so far isolated) event is that we need the US economy to be strong for the leverage in the system not to cause a panic, and that when the next downturn in the economy does come, credit is unlikely to be immune from this,' they say."

From Reuters. "A new version of a derivatives index that lets investors hedge U.S. subprime mortgage exposure on specific layers of risk is slated to hit the U.S. asset-backed securities market on Wednesday."

"Some investors doubt whether the latest index will become a popular hedge tool for investors, given the sharp slide to new lows in the ABX 06-2 and 07-1 series. 'I don't know if this thing will ever get off the ground. You've got two of the worst-performing indexes and you're going to create another product off of that? I just don't know if that's going to fly,' said Mike Kagawa, portfolio manager at Payden & Rygel."

The Orange County Register. "If guys like Steve Schroeder are correct, shoppers will have another score to worry about when they're house hunting. But Schroeder thinks you'll soon need a 'collateral risk score' too, a computerized analysis of the home's pricing to ensure it's logical."

"As this housing cycle warmed up, I can't tell you how many lenders swore to me this time wouldn't be another boom-to-bust. Why? New loan-checking technology. Yet credit scores may not have been enough. Apparently, credit scores couldn't entirely tell the lender how risky the loan would be."

"Eventually, Schroeder thinks these scores will be part of the borrowing process. The computer, unlike other participants in the process, can't be bullied or swayed by the cash-filled lure of a closed sale. 'It's a whole new ballgame,' Schroeder says."

"Schroeder knows that lenders made more than their fair share of mistakes in this real estate cycle. 'This industry operates a lot like a herd of lemmings,' Schroeder says. If one type of loan becomes popular, lenders frequently have few choices. Do those hot deals or fail to thrive, or even survive."

"'The business pressure was tremendous. That began extending the idea of what was a good loan,' says Mark Fleming, CoreLogic's economist. 'Now everybody's pulling back on their appetite for risk.'"

From MarketWatch. "U.S. retail sales fizzled at the beginning of the year, with big declines in auto and gasoline sales. The report showed 'a continuing trend of weakening growth in consumer spending,' wrote Scott Hoyt, an economist for Moody's Economy.com. Energy prices and, the housing bust will be 'formidable obstacles to spending growth.'"

"Masco Corp., the maker of Behr paint and Delta faucets, had a fourth-quarter loss after a decline in the U.S. housing market reduced demand. It was Masco's first quarterly loss in five years. Sales in the quarter fell because of the slowdown in new home construction and a moderation for consumers paying for 'big ticket' home-improvement items such as kitchen cabinets."

"Fed chief Ben Bernanke said Wednesday that the central bank is comfortable with rates at their current levels but stressed that further rate hikes could occur if the inflation outlook worsens."

"Tentative signs of stabilization have appeared in the housing sector, he said. 'However, even if housing demand falls no further, weakness in residential investment is likely to continue to weigh on economic growth over the next few quarters as homebuilders seek to reduce their inventories of unsold homes to more-comfortable levels,' he said."

"As a result, the housing market continues to be a key downside risk to the growth forecast, he said. The FOMC trimmed its forecast for real GDP growth in 2007 to 2.5%-3% from its earlier estimate of a range of 3%-3.25%. Bernanke said growth would strengthen over the course of the next two years as the drag from housing diminishes."