Some housing bubble news from Wall Street and Washington. "Countrywide Financial Corp., the biggest U.S. mortgage lender, said payments were late at the end of last year on almost 20 percent of the subprime loans it tracks for other companies and investors who own them. CEO Angelo Mozilo has said the company holds only higher-quality prime loans at its bank and pulled back from subprime lending last year."

"'If you look at our market share, we lost some for the first time in years, but it's all in the subprime area,' he said in a Feb. 8 interview. 'We were a dominant player, and now subprime is a pretty small portion of our business.' One reason was that rivals were paying salespeople in the business too much, and 'the other reason was we wouldn't take the toxic waste,' he said."

From Business Week. "Big banks' loans are souring. Bad loans, so-called nonperforming loans that include mortgages, rose 11% in December, 2006, vs. December, 2005, at banks with more than $10 billion in assets, says SNL Financial. Some are setting more money aside or buying extra insurance to cover losses. Countrywide plans to buy insurance on up to $19 billion in loans, roughly a fourth of its portfolio."

From Reuters. "Rising delinquencies may cause losses within some subprime mortgage bonds rated as high as the 'A' rated classes, despite conventional wisdom that only the lowest-rated mortgage securities would be hit, according to UBS Securities data."

"Among the 20 subprime asset-backed securities in a benchmark index, the ABX 06-2 index, run by Markit Group Ltd., six will likely sustain losses to 'BBB-' classes based on UBS calculations, analysts said."

"Projected losses are so deep on two issues that they may exceed levels of protection included with the higher-rated classes, they said."

"'People think the higher rated stuff will be protected because it's well subordinated' with lower-rated pieces, said Kevin Jackson, a mortgage strategist at RBC Capital Markets. 'That's the assumption people are making, but I agree there could be some problems higher up, at the margin.'"

From Fortune. "When a certain $126,000 subprime loan on a $696,000 house on the West Coast failed to produce a single mortgage payment, alarm bells went off at Clayton Holdings, a company that monitors credit risk."

"Closer scrutiny revealed other red flags. The borrower's previous rent payment had been $1,000, compared to the $4,482 she was supposed to be shelling out for both the primary loan and the $126,000 piggyback. And her stated income was $84,000 even though she was an hourly worker at Target."

"'We do an autopsy to find out what caused the loss of blood,' says Keith Johnson, Clayton's COO. 'It's a CSI subprime.'"

"Particularly troubling for investors is the rapidly deteriorating quality of subprime vintages originated in 2005 and 2006, years when lenders were downright promiscuous about who they loaned money to. Serious delinquencies, defined as loans at least 60 days late or in foreclosure or bankruptcy, for a 5-month old loan originated in 2006 is running at almost 4 percent, according to Moody's, compared to 2.2 percent for a similar loan originated in 2004."

"'The scariest part of that statistic is the fact that 2006 borrowers are still in their fixed-rate period. 'What will they do when their payment starts to rise?' says Glenn Costello of Fitch Ratings."

"'If there is a fault line in the global financial system, it runs through the U.S. mortgage market,' says economist Mark Zandi. 'If some hedge fund blows up on a residential mortgage-backed securities investment, that has very different kinds of implications because it is the biggest chunk of the global fixed income market. So the ripples will be more like waves, and it could turn into a tsunami.'"

The New York Times. "Insurance premiums on the potential default of Wall Street bonds have risen sharply, indicating possible concern among bond traders about potential exposure. The cost of insurance against potential bond default on Bear Stearns’s debt, for example, increased 40 percent recently, from about 22 basis points in mid-January to more than 31 on Tuesday, according to Lehman Brothers data."

"'It is impossible to get a number' on big investment bank’s exposure to subprime loans, analyst Richard X. Bove told The Times. 'And I don’t think they even know.'"

From Origination News. "Ivanhoe Mortgage, a $2 billion-a-year conventional/government lender based in Orlando, Fla., has closed its doors, according to industry officials familiar with the company."

"IndyMac Bancorp, Inc., the holding company for IndyMac Bank, today released its annual letter to shareholders from Chairman and CEO Michael W. Perry."

"'Dear Shareholders: 2006 was a challenging year in the mortgage banking industry. Industry loan volumes of $2.5 trillion were 34 percent below 2003’s historic high level and 17 percent lower than in 2005. Mortgage banking revenue margins declined further after sharp declines in 2005, and net interest margins continued to compress, as the yield curve inverted with the average spread between the 10-year Treasury yield and the 1-month LIBOR declining from 89 basis points in 2005 to negative 31 basis points in 2006."

"To cap it off, the housing industry slowed down significantly, increasing loan delinquencies and non-performing assets and driving up credit costs for all mortgage lenders."

"We have seen the return on equitys we are earning on our whole loan and MBS portfolios decline, and even fall below our cost of capital at times for some assets, such that it does not make economic sense for us to grow these portfolios to the extent that we had previously planned."

From Bloomberg. "Construction spending in the U.S. fell by the most in three months in January, pulled lower by the biggest decline in homebuilding since July. Residential construction fell at an annual rate of 19.1 percent in the fourth quarter and subtracted 1.2 percentage points from economic growth, the government said yesterday."

"'There is so much overbuilding in the last few years that we have to work down that inventory,' Federal Reserve Governor Susan Bies told reporters in Durham, North Carolina on Feb. 20. 'This could take us a year to two years depending on where the location is.'"

"U.S. banking regulators plan to issue eagerly awaited guidance on the subprime mortgage market as early as Thursday afternoon, two sources familiar with the matter told Reuters on Wednesday."

"The proposed regulation affecting borrowers with poor credit histories will be issued by agencies, including the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency."

"At issue is whether regulators will force lenders to qualify subprime borrowers based on their ability to make the highest possible monthly payments during the life of the loan, instead of the initial lower rate, according to banking experts."

"'The idea would be to have in place some criteria by which institutions would be able to evaluate the effectiveness of their programs and whether or not there are potential safety and soundness and consumer protection issues there,' one source said. 'They (the lenders) should already be focusing on that.'"