Some housing bubble news from Wall Street and Washington. MarketWatch, "Increasing problems with mortgage loans and the rapidly shrinking human touch in stock markets dominated news in the financial sector Monday. Huntington Bancshares Corp. warned that second-quarter profit has fallen prey to a triple play of credit-related issues, rising loan-loss provisions, ineffective hedging and declining net interest margin."

"'These results were below our expectations and resulted primarily from difficult and deteriorating residential real-estate markets,' said Thomas Hoaglin, CEO of Huntington, in a press release."

From Bloomberg. "Credit Suisse Group said losses for investors in bonds backed by U.S. subprime mortgages may total $52 billion, the low end of estimates as analysts try to determine the fallout from rising delinquency rates and foreclosures."

"No one knows how much money is at risk from subprime defaults because CDOs made up of the loans aren't required to publicly disclose holdings."

"Banks are likely to suffer smaller losses on their own investments in CDOs than from lending to hedge funds that may be unable to repay the debt, according to Credit Suisse."

"'Banks' direct exposure to CDOs is not as high as people think,' said Credit Suisse analyst Ivan Vatchkov. 'They stand to lose $5 billion to $15 billion from direct exposures over time on the basis of what we know now. Banks have lent money to the people who bought the risky equity tranches of CDOs, but that market isn't transparent enough to estimate exposure and risks there could be bigger.'"

"Delinquencies and defaults on U.S. subprime mortgages will keep rising as borrowers who received loans with less rigorous checks fail to keep up with repayments, Robert Parker, vice chairman of Credit Suisse Asset Management, said on July 5."

"Loans that require little or no documentation of income made up 46 percent of all U.S. subprime mortgages last year. U.S. homebuyers with undocumented income defaulted at a rate of 13 percent in February."

The Guardian. "These days, hedge fund managers and private equity bosses, not fixed income traders, are the new masters of the universe; but the dramatic sell-off in the bond markets over the past few weeks could have more momentous consequences than even the boldest private equity coup."

"Falling bond prices mean rising yields, and that means higher borrowing costs for everyone. Analysts fear a whole bath of bubbles could be about to go pop."

"Central banks have been warning for some time that investors may be paying too much for risky assets. Since the losses suffered during the sub-prime crisis, however, many investors have responded by rethinking how much risk they are willing to carry in their portfolios."

"'I think greed is switching to fear,' says Julian Jessop, of Capital Economics. 'Even if you don't have any exposure to sub-prime, you might look at your portfolio, and think, 'maybe I'm paying too much.'"

"The consequences of a downturn in the credit markets are especially tough to predict, because of a proliferation of exotic new financial products in recent years. Lenders have been packaging up liabilities, chopping them into chunks and selling them on to other investors in complex instruments such as 'collateralised debt obligations' (CDOs)."

"That comforts banks, which feel they have offloaded risks, but it makes it hard to ascertain who owes what to whom - and which domino could be the next to fall."

"Anthony Bolton, the high-profile former chief investment officer of Fidelity, warned last week of 'major risks' with CDOs, saying that they 'prolong the party and put off the day of reckoning.'"

"'In the old days, if you had a credit crunch, the authorities knew where to go: they went to the lenders, and looked at their books,' says Andrew Clare, professor of portfolio management at the Cass Business School. 'Now, when a lot of the banks have got a lot of this off their books, it's not easy to know where to look.'"

"What started as a financing squeeze in the subprime- mortgage market now threatens other parts of the economy. 'We're just starting round two,' says Andy Laperriere, managing director at ISI in Washington, who was among the first to highlight the economic impact of tougher home-loan terms. 'Tighter credit appears to be spreading beyond the mortgage market.'"

"Investors now demand almost 3 percentage points in extra interest to own U.S. high-yield bonds rather than government debt, compared with a record low of 2.41 percentage points on June 5, Merrill Lynch & Co. data show. That's the fastest increase in spreads since April 2005."

"'The credit cycle is peaking,' says John Lonski, chief economist at ratings company Moody's Investors Service in New York. He sees the high-yield spread rising to 4 percentage points by the end of 2007."

"Home buyers face rising borrowing costs as a 51 basis-point increase in yields on 10-year Treasury notes during the last eight weeks feeds into the mortgage market."

"Lenders are not only more cautious about extending credit to low-income borrowers, they've also grown stingier with mortgage loans to more credit-worthy customers, says David Seiders, chief economist at the National Association of Home Builders in Washington."

"'The problem in terms of subprimes extends out into other credit areas and produces a cool wind' that the economy has to fight against, says Bill Gross, who heads Pacific Investment Management Co.'s $103 billion Total Return Fund."

The Chicago Tribune. "There is a growing insecurity that institutions that invested in subprime investments have yet to surface with large hits to their investment portfolios."

"'People didn't understand the risks' in investing in subprime mortgage-related securities, Jeffrey Gundlach, chief investment officer of the TCW Group, said at a recent Morningstar conference in Chicago. 'Now that the tide is going out, all the wreckage is showing up at the bottom of the sea.'"

"Among subprime loans, which make up about 12 percent of mortgages, 'the delinquency rate is climbing and it should climb at a very high rate,' undermining the value of the related securities, Gundlach said. Delinquencies are now at 14 percent, and he estimates they will climb to 20 percent."

"Gundlach notes that investors who didn't realize they were taking a chance with the securities are being surprised with huge losses."

"Many investors bought subprime loan securities thinking they were rated AAA, ratings that suggest very safe bond investments, he said. Yet, they are discovering the sophisticated computer models that suggested the investments were safe are not valid, and investors bought junk bonds rather than safe bonds."

"'That's a problem,' he said. 'People bought thinking they were buying something else.'"

The Orange County Business Journal. "What a difference a year makes. The subprime mortgage industry—heavily rooted in Orange County—saw loans fall by 40% in the first quarter from a year earlier, according to a survey by National Mortgage News."

"The tally is the first look at the sector since subprime lenders started reeling late last year and Irvine’s New Century Financial Corp. began its spiral into bankruptcy in February."

From Reuters. "Having spent billions on German residential real estate in past years some private equity firms are now looking to sell, opening the door to new investors but also raising questions about the health of the property market."

"'There's no question we've reached a point where some private equity firms which have built up pretty big investments are going to think about cashing in,' said Marc Weinstock, a board member of the real estate holding company of Hamburg-based lender HSH Nordbank."

"'The market is asking itself how long the party will continue, whether these fairly high prices we've been seeing can last,' Weinstock said."

"Bovis Homes Group Plc shares fell the most ever and other U.K. homebuilders tumbled after the company said higher interest rates have scared away buyers."

"Visitor numbers to Bovis's building sites have plummeted in the past six weeks and first-half sales, reservations and prices were static after the Bank of England raised borrowing costs five times in 12 months. Any further slowing of demand will cause the Longfield, England-based company to cut its full-year sales target, it said in a statement today."

"'Confidence has been affected,' Bovis CEO Malcolm Harris said in an interview. 'Buyers have started to understand that they have to pay more and are taking longer to look at their finances and see what they can afford. The Bank has been explicit in its wish to reduce consumer spending and they've put up rates to do just that.'"

"'Bovis hadn't previously indicated they were under pressure, so this is a surprise,' said analyst Tom Gidley-Kitchin. 'Investors are worried about when house prices are going to start to fall and no one knows when it will be. Bovis has been more cautious than anyone else.'"

"Bovis aims to introduce a new range of inducements for buyers within weeks to help counter the extra financial burden of higher borrowing costs once it's won approval from the U.K. Financial Services Authority, Harris said."

"'We believe we can increase our volume, but if the market slows any further we'll have to bring our target down,' he said. 'We need our sales rate to pick up and we will introduce new incentives to do that.'"