Some housing bubble news from Wall Street and Washington. Bloomberg, "Housing starts in the U.S. fell for the first time in four months in May as interest rates rose, suggesting no early end to the recession in residential real estate. Builders broke ground on new houses at an annual rate of 1.474 million, down 2.1 percent from the prior month, the Commerce Department said today."

"Record levels of unsold homes suggest the slump is far from over. Fed policy makers now say the housing recession may linger longer than previously forecast."

"'Builders are really worried now, not only by the credit tightening in the mortgage market, but now all of a sudden by an increase in the fundamental mortgages as well,' David Seiders, chief economist at the National Association of Homebuilders, said."

"'Without a doubt, things have slowed since about March,' said Ara Hovnanian, Hovnanian Enterprises's CEO in an interview yesterday. 'There is not a recovery that is about to happen.'"

From Reuters. "The report showed how hard the once-thriving housing market on West Coast had been hit. Housing starts there were off 38 percent in May from a year ago, the largest year-on-year drop since a 49 percent decline in March 1991."

"'Unwinding the dramatic rise in nonprime mortgages could have a noticeable effect on home construction beyond what we've seen through the first quarter,' Dallas Fed economist John Duca said."

"Duca noted some industry analysts believed home building could slow by another 10 percent to 15 percent. 'With nonprime lending at nearly 40 percent last year, the effect could be even greater,' he warned."

The Street.com. "On a year-over-year basis, the May housing starts dropped 24.2%. Building permits, meanwhile, rose to 1.5 million units in May, up 3% from April but down 21.7% from a year earlier, the Census Bureau said."

The Idaho Stateman. "A measurement of industry sentiment about the housing market fell in June for the fourth straight month to the lowest point in more than 16 years."

"The slump in the housing market has taken its toll on the Treasure Valley, said Mike Riggs, president of Middleton-based Crestmark Custom Homes. Riggs placed part of the blame for the stalled building industry on out-of-state homebuilders who continue to construct single-family homes despite the downturn in sales activity, thereby adding to an already over-supplied market."

"'They just keep putting product up,' he said. 'They don't care. They have the deep pockets to ride it out.'"

"Bids for the main index of subprime mortgage bonds dropped to a record low on Tuesday as concerns of losses at a hedge fund and weak housing suggest a deeper downturn for the debt."

"'Everyone is still pretty bearish in ABX space,' said Chris Sullivan, chief investment officer for the United Nations Federal Credit Union in New York. 'Shorts are being increased, it seems.'"

The New York Times. "After the first cracks in America's sub-prime mortgage business appeared late last year, several large lenders were forced into bankruptcy. Now the stress is sending tremors down Wall Street as investment funds that bought stakes in those loans are starting to wobble."

"'Basically, Bear Stearns is trying to prevent the great unwind of their fund,' said Janet Tavakoli, president of Tavakoli Structured Finance, a consulting firm that helps investors gauge risk. 'The reason people are watching this carefully is because they're wondering whether this is going to lead to others doing the same, or will this be contained.'"

The New York Post. "A foundering Bear Stearns hedge fund staved off collapse for another day, getting a 24-hour reprieve from angry creditors in order to allow Blackstone Group to implement a rescue plan."

"Beset with nearly 30 percent losses and demands from lenders for additional collateral, known as margin calls, the Bear Stearns High Grade Structured Credit Strategies Enhanced Leveraged Fund is at the thin end of a very, very fat wedge."

"What's left is $2 billion in illiquid and arcane assets known as collateralized debt obligations that were already difficult to trade and are now rapidly losing their value."

"The prospect of these securities being scooped up by the bond market was already dim, but with few trading desks likely to provide capital to a struggling fund, the losses could be driven higher."

"If creditors don't provide capital and the fund is forced to sell the assets, which no bond trading desk is anxious to bid on, 'The world becomes very different, very fast for a lot of people,' said a wary hedge fund manager."

"In the old days of relationship banking, banks relied on credit quality control and huge balance sheets to ride out any problems, but collateralized loan obligations (CLOs) investors may be more short-term oriented."

"Lack of credit quality control by some managers of CLOs is particularly frightening to veteran private equity investors."

"'What all of this will show, and it will show more as CLOs become more popular, is that risk management has not been very well practiced,' said billionaire financier Wilbur Ross. 'That's going to hurt a lot of people, and will ultimately explode the bubble.'"

"Upcoming debt sales may prove the tipping point for market sentiment. Canceled deals or a lack of buyers could puncture investor confidence, pushing record low default rates higher."

"'You're close to the peak of the cycle,' said Anton Schutz, a portfolio manager at Mendon Capital, which focuses on financial firms. 'For new collateralized debt obligations (CDOs) coming to market, the end buyers are going to say, 'I just took a loss on these things and you want to sell me more?' They'll want to know more about what's in this paper.'"

The New York Sun. "According to a recent presentation made by John Olert of Fitch Ratings, the past three years have seen $477 billion in high-yield debt issues, of which 67% was rated below BB. The amount of single-B and lower debt as a portion of noninvestment-grade debt issues has been steadily increasing since 2002."

"These conditions almost guarantee a wave of defaults and restructurings down the road. Indeed, the Fitch presentation concludes, 'The slide down the rating scale suggests the next default wave will be more severe than the 2001-2002 downturn.'"

"Last week Standard & Poor's published a report titled 'The Covenant-Lite Juggernaut Is Raising CLO Risks — And Standard & Poor's Is Responding.' The report details the growth in collateralized loan obligations being made with virtually no covenants, provisions that have historically required borrowers to meet certain financial tests dictated by lenders."

"S&P points out that so-called cov-lite loan volume in the first quarter 'exploded to $48 billion, a stupendous figure by any measure, from the $24 billion full-year 2006 total.' It projects that 'when the cycle turns (as is inevitable) lenders...will rue the day they gave up on maintenance covenants.'"

"The millions of Americans facing foreclosure on their homes aren't the only victims of the housing market bubble. There are also many consumers who have been duped into participating in schemes to buy properties and sell them at inflated values."

"Mortgage finance company Fannie Mae has seen a big increase in mortgage fraud over the last two years, particularly in the Midwest."

"'An alarming number of Fannie Mae's recent investigations have found that otherwise honest consumers and real estate professionals are fooled into conspiring to commit mortgage fraud.' William Brewster, the housing agency's director of anti-fraud initiatives, said in prepared remarks delivered at a Federal Reserve hearing."

From Dow Jones Newswires. "The foundations of Spain's property market are looking increasingly shaky, and a sell-off in the sector just a few short weeks ago may well be a sign of more troubles ahead, analysts say."

"'The grounds for the panic were real enough and it will probably happen again,' said Charles Dumas, director of Lombard Street Research. 'The Spanish housing market has had it.'"

"Construction rates in Spain are running at roughly 800,000 new homes a year, noted Dumas, against demand for around 600,000 homes. That's more than the total number of homes constructed in Italy, France and Germany combined."

"'Spain has more homes per 1,000 head of population than any other country in Europe and they continue to add to it, resulting in record levels of household debt,' said Dumas."