Some housing bubble news from Wall Street and Washington. CNN Money, "Merrill Lynch has seized about $800 million of assets from troubled hedge funds managed by Bear Stearns, throwing in doubt the chances that the funds will survive. The assets, which were collateral for underperforming loans made by Merrill Lynch to the two funds, are mainly bonds backed by other securities that are now expected to be sold off later in the day, a person familiar with the situation told CNNMoney.com Wednesday morning."

"The two funds suffered double-digit losses through April after making bad bets on securities backed by subprime loans, Reuters reported."

"Just a few months back, an industry insider had warned of a 'catharsis' and coming collapse in the bond market. 'We're looking at somewhat immature markets that are going through a growth phase,' Ralph Cioffi, senior managing director of Bear Stearns Asset Management, said at a bond conference in New York in February. 'There is a catharsis and a cleaning-out process.'"

"Cioffi warned investors attending a CDO and Credit Derivatives conference about inexperienced managers who may not understand the risks of the market. 'Up until now, any CDO manager, primarily new CDO managers with light staffing, very little technology and unbalanced capability, was able to get a CDO done,' Cioffi said at the time. 'I don't see that going forward.'"

The Street.com. "Observers fear the dissolution of the Bear funds could spell bad news for other hedge funds and managers of so-called collateralized debt obligations, pools of debt including leveraged loans and mortgages, because it may force a broad repricing in those largely illiquid mortgage securities."

From Reuters. "The CDOs for sale are mostly rated 'AAA,' but at least one is rated 'BBB,' according to the lists."

The New York Post. "As a Bear Stearns internal hedge fund begins collapsing, all of Wall Street is wondering if other funds might follow suit."

"One hedge fund portfolio manager at a $4 billion fund told The Post that auctioning off the assets of Bear's High Grade Structured Credit Strategies Enhanced Leverage fund would unleash Wall Street's dirty secret."

"'These CDOs [collateralized debt obligations] are probably marked 30 percent higher than where they should be,' he said."

From Bloomberg. "Bear Stearns Cos., the biggest broker for American hedge funds, offered to provide $1.5 billion in loans to help rescue a money-losing fund run by its asset-management unit, a person familiar with the situation said."

"Bear Stearns, seeking to stave off liquidation of the fund, made the commitment Monday in a meeting with creditors after losses forced the sale of $4 billion of mortgage bonds last week."

"Merrill Lynch and JPMorgan had planned to sell another $800 million of bonds of so-called collateralized debt obligations owned by the fund this week, the person said."

"'It's tough to tell whether this was an isolated event or whether there will be other funds like this that have bought this type of paper and are facing mark downs or redemptions,' a product portfolio manager who runs the CDO business at Smith Breeden Associates Inc, Peter Nolan, said. The firm manages about $34 billion in fixed-income assets, about a third of which are asset-backed bonds."

"The bond market's most battered players, the hedge funds and trading desks specializing in mortgage-backed securities, now have to handle a total of $2 billion or more hitting a market that is still licking its wounds from the first burst of sub-prime woes."

"The sales are likely to force a serious re-pricing of billions of dollars worth of highly complex and often illiquid securities called collateralized debt obligations, or bonds made from other bonds."

"Held by both Wall Street firms and hedge funds, the CDOs stocked with sub-prime bonds have not collapsed in price alongside other sub-prime bonds."

"'They haven't collapsed in price because they are often mismarked or just don't get traded,' said one hedge fund executive who has evaluated the Bear fund's positions. 'That is going to change in a big way today at 4 p.m., when the [Merrill] auction ends.'"

The Associated Press. "Some homeowners in California, Florida and the southwestern U.S. now face more than a 60 percent chance their property will be worth less in two years, according to the PMI U.S. Market Risk index."

"The index found that 15 of the nation's 50 largest metro areas have a greater than 50 percent chance of seeing price drops. Eleven of those markets are in California and Florida, including Los Angeles and Miami. The riskiest of all markets are Riverside, Calif., Phoenix, Las Vegas and West Palm Beach, Fla.,each with a greater-than-60 percent chance of depreciation."

"'What the markets with the greatest risk of decline have in common is a history of price volatility: rapidly rising rates of price appreciation above the long-term average followed by a recent sharp slowdown in the rate of appreciation,' said Mark Milner, PMI's chief risk officer."

"Applications to buy and refinance homes dropped last week, an industry trade group said on Wednesday, the latest sign that U.S. housing remains mired in a downturn."

"'We're not through with this correction,' said Gregory Miller, chief economist at SunTrust Banks Inc. in Atlanta. 'Price correction is an absolute necessity, affordability got way out of hand.'"

"The jump in 30-year mortgage rates by more than a half a percentage point in the past five weeks is putting a crimp on borrowers with the best credit just as a crackdown in subprime lending standards limits the pool of qualified buyers."

"The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, according to the National Association of Realtors."

"'It's a blood bath,' said Mark Kiesel, executive VP of Pacific Investment Management Co., the manager of $668 billion in bond funds. 'We're talking about a two- to three-year downturn that will take a whole host of characters with it.'"

"The recent increase in mortgage rates is the biggest spike since 2004. The change means buyers can afford 8 percent less house than they could five weeks ago, Kiesel said. 'Prices are going lower,' he said."

"In addition to their primary mortgages, homeowners had $913.7 billion of debt in home equity loans in 2005, more than double the $445.1 billion in 2001, according to a paper by former Federal Reserve Chairman Alan Greenspan and James Kennedy on equity extraction issued by the Fed three months ago."

"About a third of that money, extracted as home values surged 53 percent from 2000 to 2005, was used to buy cars and other consumer goods, according to the paper. The interest rate on those loans doubled to 8.25 percent in 2006 from 4 percent in 2003."

"The share of mortgages entering foreclosure rose to 0.58 percent in the first quarter, the highest on record, from 0.54 percent in the final three months of 2006, the Mortgage Bankers Association said in a report last week."

"Prime loans entering foreclosure increased to 0.25 percent, the highest in a survey that goes back to 1972."

"The share of people taking out all types of adjustable-rate home loans averaged 29 percent during the past three years, compared with the 17 percent average of the prior three years, according to Freddie Mac."

"Higher fixed mortgage rates and stricter lending standards mean some of those borrowers won't be able to refinance into fixed-rate loans. Many of them have seen their home's value drop even as their interest rates adjust higher."

"'When all these people see their mortgage payment and it's up 40 or 50 percent, they're going to say, 'We can't stay in this house,' Pimco's Kiesel said. 'And there are millions of people in this situation.'"

"Higher mortgage rates and a glut of unsold homes are prompting many would-be buyers to hold off on purchasing as they await further price declines. The Mortgage Bankers Association's report, along with figures yesterday showing a decline in home starts, adds to evidence that the housing slump will linger, economists said."

"'The message I'm getting is that maybe only about two- thirds of those cases do the builders consider the incentives, even the price cuts, to be effective,' David Seiders, chief economist of the National Association of Home Builders, said in an interview June 18. 'In some cases it's actually making the buyers think 'wow, there might be something better coming down the line.'"