Some housing bubble news from Wall Street and Washington. "Stock markets around the world tumbled Wednesday as investors moved to reduce risk, spooked by the sharp sell-off on Wall Street amid mounting fears over rising mortgage defaults. 'The rise in mortgage delinquencies in the U.S. has to be one of the most predictable events of the century so far, but has nevertheless provoked a further reaction in financial markets,' said Paul Donovan, an economist at UBS."

From Reuters. "H&R Block Inc. shares dropped on Wednesday after the nation's largest tax preparer said it was boosting its third-quarter loss after cutting the value of a subprime mortgage subsidiary."

"The nation's largest tax preparer said a $29.2 million pretax cut in the carrying value of the mortgage business deepened its quarterly loss by $15.5 million to $60.3 million."

"H&R Block said on Tuesday that it expects to delay filing its quarterly results with regulators after turmoil in the subprime mortgage market forced it to write down assets at its Option One Mortgage Corp. unit."

From Bloomberg. "GMAC said yesterday that its home mortgage unit lost $651 million in the fourth quarter. 'The residential mortgage market has been a tough area over the last three, four, six months for GMAC,' CEO Rick Wagoner."

"Subprime loan losses at the GMAC finance unit caused operating earnings to miss analysts' estimates. 'The falloff in GMAC combined with continued pressures in GM North America brought GM in well below consensus,' Lehman Brothers analyst Brian Johnson wrote."

"The perceived risk of owning GM's bonds rose today, according to credit-default swap traders, as concerns about losses from the subprime mortgages pushed bond risk higher across the market."

"Credit-default swaps based on $10 million of GM's bonds jumped $40,000 to $455,000, according to London-based CMA Datavision. The contracts, used to speculate on the company's ability to repay its debt, have risen more than $78,000 in the past two days, CMA prices show."

From MarketWatch. "Losses on so-called Alt-A home loans are accelerating and could hit the value of lower-rated portions of some mortgage-backed securities, according to a study released on Tuesday."

"These loans, known as Alt-A ARM IOs, have seen a four-fold increase delinquencies of at least 60 days, four times the level of similar loans originated in 2003 and 2004, according to the study by David Liu, head of mortgage credit research at UBS."

"This 'alarming' deterioration could have dire consequences for some investors in the BBB- rated parts of mortgage-backed securities that contain these types of loans, but the market hasn't priced these risks in yet, Liu warned."

"Losses 'could potentially wipe out most of the credit support on BBB- rated bonds backed by Alt-A hybrids,' Liu wrote. 'And yet we have not seen any spread movements that suggest investors are taking this into consideration.'"

"Liu's study, which used LoanPerformance data from the end of January, is based on the housing market remaining relatively flat over the next few years. 'If house prices fall over the next few years, everything in this scenario will be much worst,' he said."

"'There is a 34% probability that the entire BBB- tranche might get wiped out,' he wrote. 'Similarly, there is a 17% probability that cumulative losses reach 300 basis points, which could make BBB bonds appear on the endangered species list.'"

"The percentage of mortgages that started the foreclosure process in the final quarter of last year rose to 0.54 percent, a record high. The previous high, 0.50 percent, occurred in the second quarter of 2002 as the economy was recovering from the blows of the 2001 recession."

"Delinquency and foreclosure rates were considerably higher for higher-risk subprime borrowers, especially those with adjustable-rate mortgages. The late-payment rate for all subprime loans jumped to 13.33 percent in the fourth quarter, up from 12.56 percent in the prior period and the highest in four years. The delinquency rate for subprime borrowers with adjustable-rate mortgages was even higher; 14.44 percent, also the highest in four years."

"'Unfortunately, it appears delinquency rates will likely worsen before they improve,' said Gina Martin, economist at Wachovia Corp. Economics Group."

The Orange County Register. "Bill Spitalnick spent seven years reviewing appraisals for subprime loans, first at Ameriquest in Orange and then at Fremont Investment & Loan in Anaheim. Last year, he began to see more cases where the loans exceeded the home's values."

"'The main problem was 100 percent financing and declining values,' said Spitalnick of a situation that put the lender at great risk."

"Subprime lending boomed by tapping into Wall Street's mortgage securities market – now worth $6.5 trillion. This machine repackages loans into investor-friendly debts."

"'There was a global appetite for investing in subprime debt,' said Stuart Gabriel, chair of the Lusk Center for Real Estate at USC. 'New Century is an entity that couldn't have survived – that can't survive – without significant capital infusion from Wall Street."

"This week, New Century said its financial partners were demanding it buy back up to $8.4 billion in loans, bringing the company to the verge of bankruptcy. Glenn Stearns, of Costa Mesa-based Stearns Lending, said as soon as one subprime lender's financial backers pull out, others follow. 'It's just a house of cards,' he said."

"U.S. lawmakers will have to consider providing aid to about 2.2 million subprime mortgage borrowers who are at risk of defaulting and losing their homes, Senate Banking Committee Chairman Christopher Dodd said today."

"'The impact of losing 2.2 million homes I suspect will be in a lot of areas of our cities and towns that are already pretty hard hit, so we clearly want to look at that and legislate,' Dodd told reporters."

"Federal aid 'would come at a cost,' said Douglas Duncan, chief economist at the Mortgage Bankers Association. 'It has to be paid for and the question is would the 34 percent of homeowners who have no mortgage be willing to pay taxes to support the bailout of people who traditionally have not managed credit well?'"

The LA Times. "On Tuesday, the chairman of the Senate Banking Committee speculated that millions could lose their homes. It's scary stuff. But not so scary that anyone needs to raise the possibility of a federal bailout. This means you, Sen. Christopher J. Dodd."

"Standing up for homeowners doesn't take much political courage. And mentioning the American dream makes a nice sound bite for a senator running a dark-horse campaign for president."

"But providing forbearance is a job for lenders, not taxpayers. Lenders got very creative when they learned they could profit by unleashing a flood of easy credit. If they want to remain solvent and keep Wall Street happy, they'll have to be equally creative when it comes to refinancing sub-prime mortgages."

"The Federal Reserve and the Office of the Comptroller of the Currency took little action in public to police the $2.8 trillion boom in the U.S. mortgage market, whose bust now risks worsening the housing recession."

"The Fed, which is responsible for the stability of the banking system, didn't publicly rebuke any firm for failing to follow up warnings on home-lending practices between 2004 and 2006. The OCC, which supervises 1,793 national banks, took only three public mortgage-related consumer-protection enforcement actions over the same period."

"'There was tension between the responsibilities not to mess up some banks' businesses and the responsibility to consumers,' said Edward Gramlich, a Fed governor from 1997 to 2005. The result, he said, is that 'we could have real carnage for low-income borrowers.'"

"Officials at the Fed and OCC say their examination process was rigorous and resulted in private enforcement and correction of abuses."

"The agencies say they aren't allowed to disclose how many non-public actions they took between 2004 and 2006 that were aimed at protecting consumers from home-loan abuses. Private enforcement action 'contains confidential supervisory information,' said Susan Stawick, a Fed spokeswoman in Washington. The OCC considers the information 'proprietary and confidential,' said Kevin Mukri, a spokesman in Washington."

"'Making sure people understand what they're getting into is very important,' Fed Chairman Ben S. Bernanke said in Stanford, California, on March 2. 'We've issued several guidances. We hope that they'll be helpful.'"

"Federally regulated banks and Wall Street firms are often the financiers standing behind state-regulated mortgage lenders. New Century Financial Corp., the nation's second-biggest subprime lender, includes Morgan Stanley, Citigroup Inc., and Goldman Sachs Group Inc., all regulated by federal agencies, among its creditors."

"'There is no question that mortgage brokers are on the street committing systematic fraud on the American homeowner,' said Irv Ackelsberg, a Philadelphia attorney who testified at a Fed hearing last year in the city. He said there is a 'lack of will' on the part of the Fed to use its power to stop abuses."

"'There is going to be a fraction of people that get the wrong product and that is regrettable,' Richmond Fed President Jeffrey Lacker said in an interview. 'Should we do something to limit that probability? Well, we could, but it would also limit credit to people for whom that is the right product.'"

"Critics say the regulators' private responses harm consumers by depriving them of information they might need to take action on their own behalf. 'Borrowers hurt by an abusive practice have the right to a remedy,' said Alys Cohen, a staff attorney at the National Consumer Law Center in Washington."

"Ackelsberg told former Fed Governor Mark Olson and Consumer Affairs Director Sandra Braunstein that the subprime market was 'fundamentally broken,' and presented an example of a loan that left a Social Security recipient with about $10 a day to live on after she paid her mortgage."

"He and other critics say the lack of public action is symptomatic of a too-cozy relationship between the overseers and the overseen, with consumers and the U.S. economy paying the price. 'We have regulators almost competing with one another to be clients of the industry,' said David Berenbaum, executive vice president for the National Community Reinvestment Coalition in Washington."