Some housing bubble news from Wall Street and Washington. "Mortgage insurer MGIC Investment Corp. said on Wednesday its first quarter profit fell 43.4 percent as losses and expenses cut into its business. 'Deterioration in home prices...a downturn in the domestic economy or changes in our mix of business may result in more homeowners defaulting and our losses increasing,' the company said."

"MGIC is closely watched by analysts and investors because of the 'meltdown' in the subprime loan market."

From MarketWatch. "MGIC said it incurred losses of $181.8 million in the latest period, up from $114.9 million last year. 'To see a large uptick in the provision for losses well worse than even our below-consensus estimates this early in the year is a bit concerning,' Goldman Sachs said Thursday."

"Also in the headlines, Countrywide Financial Corp said loan fundings last month totaled $43 billion, an increase of 5% from March 2006. Subprime loan fundings fell 29% to $2.4 billion in March."

"Countrywide said...that subprime loans 'continued to decline, accounting for 5% of total mortgage loan originations for March 2007 and 7% of total mortgage loan originations for the first quarter.'"

From Reuters. "Countrywide Financial, the largest U.S. mortgage lender, said on Thursday the amount of mortgages in its portfolio that are in foreclosure nearly doubled, amid a difficult U.S. housing market."

The Associated Press. "Moody's Investors Service said Wednesday it cut its rating on Hovnanian Enterprises Inc.'s debt, saying the homebuilder is bleeding cash amid a downturn in the housing market."

"'The housing market has experienced a steep decline,' Moody's said. Normally, homebuilders burn cash during an upswing in the market as they build houses they expect to sell. Then, they generate cash during a downturn as they clear homes in their inventories."

"Now, however, Hovnanian is burning cash during a downturn, Moody's said."

"U.S. bonds backed by commercial real estate loans have become riskier over the past few years as lenders have loosened their standards and property appreciation has slowed, according to a Moody's report."

"'Today's deals have become increasingly fragile,' Moody's said in the report. 'The continued erosion of credit standards in the marketplace has caused us, for the first time, to reverse course and push subordination levels back up.'"

"Moody's cited a number of factors suggesting growing risk in CMBS deals, including record high leverage, increased use of interest-only loans and fewer investment-grade loans used in deals."

From Bloomberg. "More homeowners with subprime adjustable-rate mortgages face tests of their ability to handle higher monthly payments starting later this year, RBS Greenwich Capital Markets Inc. said."

"'At first glance,' many subprime borrowers wouldn't qualify for refinancing if lenders are forced to assess whether they could afford the higher payments from an adjustment that would occur without a change in benchmark rates, Lehman Brothers analysts said."

"'A much larger issue' that will limit refinancing opportunities for the borrowers, potentially making loan performance 'exponentially' worse than in the past, are the new standards for how much consumers can borrow compared with the value of their homes, the Lehman Brothers analysts wrote."

"Relaxed lending standards may have contributed to a surge in U.S. mortgage failures this year, but the chance of recession could hang on the complex derivatives used to hedge loan risk, analysts say."

"About 40 percent of CDO collateral is residential mortgage backed securities, according to Joseph Mason of Drexel University, and Joshua Rosner of research firm Graham Fisher & Co."

"Two-thirds of that is subprime and home equity loans, a market which on a dollar basis has grown from $35 billion in 1994 to $625 billion in 2005. In effect, U.S. residential mortgage finance has been propped up by the CDO market, and vice versa."

"'Even a small decline in CDO funding of lower-tier investments can have a large effect on MBS funding overall, and therefore consumer mortgage funding,' said Albert Edwards, global strategist at Dresdner Kleinwort."

"By February, 12.4 percent of U.S. subprime loans were delinquent by more than two months, up from 7.8 percent a year before, according to FirstAmerican LoanPerformance. Subprime and Alt-A (sub-prime/prime) account for 21 percent of U.S. loans and 39 percent of mortgages made in 2006."

"The impact of the delinquencies on the bond market are seen on the ABX index of credit default swaps on subprime mortgage bonds. Spreads on BBB- rated tranches traded at around 1400 basis points on March 23, compared with 200 basis points last July."

"Moody's found that subprime mortgage-backed securities were on average 45 percent of structured finance portfolios made from 2003 to 2006."

"Signs of contagion are already emerging. A Federal Reserve Board of Governors report in February showed the net percentage of lenders tightening mortgage standards was around 18 percent, the highest level since 1991."

The Financial Times. "US politicians are drawing up a bill that could make it less attractive for Wall Street investment banks and other financiers to repackage risky mortgages into securities and then sell them to investors around the world."

"Spencer Bachus has backed an 'assignee liability' system which would mean investment banks that repackage mortgages into bonds would be liable to pay compensation to borrowers if loans turned out to have been mis-sold. unless they can show they conducted extensive due diligence."

"Such a move would make it less attractive to repackage these loans and to buy mortgage-backed securities."

"Mortgage late payments and defaults reached record levels in the first quarter and may threaten the modest U.S. economic expansion seen this year, Moody's Economy.com said in a survey released on Wednesday."

"'Delinquency and default rates jumped to new highs in the quarter, and all indications are that they will continue to rise measurably into 2008,' the survey said."

"The first-quarter rate outpaced the previous record delinquency rate in the fourth quarter of 2001."

"Credit problems exist all over the country, the report said, with the largest increases in California, Florida, Nevada and much of the Northeast. Beyond that, 30-day, 60-day, 90-day and 120-day delinquency rates all rose strongly."

"At an annualized pace, first-quarter defaults reached 1.16 million, far outpacing the 900,000 defaults last year."

"More financially stretched borrowers are realizing even declaring bankruptcy can't save their homes from foreclosure."

"According to a study released in March by Credit Suisse Group , more subprime borrowers are turning to bankruptcy court to stave off foreclosure, as softening housing prices make it harder for them to sell their homes to repay debts."

"At least part of the blame, says the report, lies with the bankruptcy law passed in October 2005. The law raised the bar for people to qualify for Chapter 7 'fresh start' bankruptcy proceedings. With access limited, more subprime borrowers are forced into Chapter 13, where some can't maintain their payment schedules for more than a couple of months."

"'It's become harder to file for Chapter 7 to release debt burdens,' said Jay Guo, the lead author of the study. 'Going forward,' he added, 'delinquent loans are more likely to go into foreclosure directly rather than into bankruptcy,' resulting in higher losses for mortgage-bond investors."