Some housing bubble news from Wall Street and Washington. Bloomberg, "MGIC Investment Corp., the largest U.S. mortgage insurer, said second-quarter profit plunged 49 percent as it paid more in claims. MGIC, which protects banks against defaults on home loans, said losses climbed 61 percent to $235.2 million."

"'We know California is a developing problem. We know Florida is a developing problem,' said Geoffrey Dunn, analyst at Keefe Bruyette & Woods Inc. 'It's simply the amplitude that's the surprise in the quarter. We're going to need help from management and a lot more color on specifically what happened.'"

The Sydney Morning Herald. "Investors in the collapsed $320 million Basis Yield fund could receive less than 50c in the dollar from distressed asset sales, making Basis Capital and its investors the first Australian casualties from the subprime mortgage meltdown in the US."

"In a letter sent by Basis Capital to unit holders on Wednesday, the previously highly-rated fund manager said Basis Yield's master fund, the Cayman Islands-registered Basis Alpha Yield, had been unable to pay margin calls on loans."

"The note warned: 'Basis Capital assesses that enforcement action by the financiers of the master fund at distressed sale prices would result in a reduction in the net asset value of the units for the Basis Yield Fund to below half of the level as at May 31.'"

"Basis Alpha Yield invests primarily in complex collateralised debt obligations, or CDOs, which do not have an easily established market price."

The Sacramento Business Journal. "National mortgage company IndyMac Bancorp Inc. started the second phase of its expansion into Austin, Texas, and plans to nearly double its employees there by year's end."

"About 8 percent of the loans in its portfolio are in delinquency. Many of the jobs opening up this year at the Austin servicing center will be focused on dealing with delinquent loans and foreclosures, said J.K. Huey, IndyMac's senior VP of home loan servicing."

From Reuters. "Troubles in mortgageland may get worse before they get better, especially for the so-called 'subprime' borrowers whose spotty credit histories put them into more costly loans."

"'It's an amorphous blob of trouble,' says Keith Gumbinger of HSH Associates, a mortgage research firm. 'And there's more pain to come.'"

"In the first quarter of this year, roughly one of every 41 subprime loans was entering foreclosure, and more than one of every six were delinquent, according to the Mortgage Bankers Association. Those are the worst mortgage default statistics since the Great Depression."

"And it's likely to get worse because the 2006 crop of mortgages, which will start resetting next year, were of a particularly low quality."

"Federal Reserve Chairman Ben Bernanke said on Thursday that subprime mortgage losses could hit $100 billion and threaten consumer spending."

"'The credit losses associated with subprime have come to light and they are fairly significant,' Bernanke told the Senate Banking Committee in a second day of testimony. 'Some estimates are in the order of between $50 billion and $100 billion of losses associated with subprime credit problems,' he said."

From MarketWatch. "Senators pressed Bernanke to respond to news earlier in the week that Bear Stearns Cos. told investors in two of its specialty hedge funds, which had invested in derivatives based on mortgage-backed securities, that the two funds were almost worthless."

"Bernanke said these were 'market innovations' and 'sometimes there are bumps' in the new-product road."

"'We'll see how this works out,' Bernanke said."

"In addition, Bernanke told members of the Senate Banking Committee that the pain and suffering felt from foreclosures and delinquencies will 'likely get worse before they get better.'"

"Bernanke, under fire from lawmakers for the Fed's failure to step in earlier to address the factors underlying the nation's housing bubble, said the Fed and other regulators will soon issue stronger rules to protect consumers."

The Associated Press. "Under pressure from Congress to combat problems in the market for subprime loans given to people with spotty credit, Bernanke highlighted the Fed's efforts to tighten protections in the troubled home loan market in a midyear economic report to Congress."

"Bernanke told the House Financial Services Committee that the Fed is examining new rules in several areas including restrictions on so-called 'liar loans,' limitations on financial penalties for borrowers who make early payments and a mandate that lenders require set-aside payments for subprime borrowers' property taxes and homeowners' insurance."

"'The recent rapid expansion of the subprime market was clearly accompanied by deterioration in underwriting standards and, in some cases, by abusive lending practices and outright fraud,' Bernanke said."

From CNN Money. "Despite government calls for tougher regulation in the subprime mortgage market, brokers and lenders don't seem to be getting their guidance from Washington. Instead, they're turning to Wall Street."

"'It's more the market that's been dictating what kinds of loans are made. Lenders are reacting to what investors will buy,' said Steve Habetz, a mortgage broker in Connecticut."

"When regulators tightened subprime lending guidance in late June to try to curtail risky practices that led to record foreclosures, all it did was reinforce a trend that Wall Street had started long before."

"David Wyss, chief economist for Standard and Poor's, which rates the bonds backed by subprime and other mortgage loans, said Wall Street stopped buying the loans since early spring, long before the Fed released its guidelines."

'"The market has been way ahead of the Fed,' he said. 'If anything, it has overreacted.'"

"Doug Duncan, chief economist for the Mortgage Bankers Association, agreed with Wyss. 'For more than six months there's been tightening,' he said."

"Washington Mutual Inc, one of the largest U.S. mortgage lenders, on Wednesday said it will stop offering some popular home loans for subprime borrowers, after rising defaults caused losses to mount."

"CEO Kerry Killinger said that effective immediately, Seattle-based WaMu will require full documentation of income and assets from prospective subprime borrowers, eliminating riskier 'stated income' loans."

"WaMu will also no longer offer subprime adjustable-rate mortgages with initial fixed terms of fewer than five years. This eliminates so-called 2/28 and 3/27 loans."

"The home loans unit posted a $37 million loss. Overall loan volume fell 24 percent. WaMu set aside $372 million for credit losses, up 66 percent. Net charge-offs more than doubled to $271 million. Killinger citing housing market deterioration."

"WaMu now plans to set aside $1.5 billion to $1.7 billion this year for credit losses, up from its prior $1.3 billion to $1.5 billion forecast."

"CIT Group Inc. said on Wednesday it was exiting the mortgage business and posted a surprise second-quarter loss, as the commercial and consumer lender became the latest to bail out of the struggling home loan sector."

"CIT CEO Jeff Peek...cited poor returns in mortgages as a reason for shedding the business. CIT posted a second-quarter net loss of $134.5 million. The company said it incurred a loss...on the exit from its home lending and construction business, after lowering the fair-market value of a mortgage portfolio worth more than $11 billion."

"Standard and Poor's Rating Services dropped the other shoe Thursday, announcing it would downgrade 418 classes of U.S. residential mortgage backed securities (RMBS) backed by second-lien collateral. The rating agency said it acted because of the poor payment histories for these loans."

"The action covered second-mortgage loans, such as home equity loans (HELs) and home equity lines of credit (HELOCs)."

"The original total balance of all the loans being downgraded came to about $3.8 billion. That represents 6.1 percent of the approximately $62 billion in U.S. RMBS backed by second-lien collateral that S&P rated from the beginning of January 2005 through the end of January 2007."

"The dollar amount of all mortgages extended during that period came to about $2.5 trillion, but the downgrades are expected to have more of an impact than the numbers might indicate."

"'It's going to be more severe [than last week's action],' said S&P's chief economist, David Wyss."

The Prescott Herald. "Subprime borrowers are having growing problems making their mortgage payments, and there has been evidence of outright fraud in some low-documentation loans."

"The issue was raised last week when Standard & Poor‘s and Moody‘s Investors Service, the two largest bond-rating agencies, reported that billions of dollars worth of subprime mortgage-backed bonds issued last year were performing worse than they expected and will likely continue to deteriorate as the housing market continues to decline at least into early 2008."

"David Wyss, Standard & Poor‘s chief economist, said that housing prices should continue to drop in parts of the country well into next year, and some of the biggest bubble spots could see price drops of up to 20 percent, putting subprime borrowers in a tough spot if they can‘t make their mortgage payments."