Some housing bubble news from Wall Street and Washington. MarketWatch, "Countrywide Financial Corp. reported a 33% drop in second-quarter net income on Tuesday and signaled that problems in the subprime mortgage market have spread to the highest-quality home loans. 'The company incurred increased credit-related costs in the quarter, primarily related to its investments in prime home-equity loans,' CEO Anthony Mozillo said in a press release."

"Results were hurt by impairment charges totaling $417 million and a loan-loss provision of $292.9 million."

"Countrywide said payments were at least 30 days late at the end of second quarter on 4.56% of prime home-equity loans serviced by the company, up from 1.77% a year earlier. 'The impairment charges on these residuals were attributable to accelerated increases in delinquency levels and increases in the estimates of future defaults and loss severities on the underlying loans,' the company said."

The Street.com. "'During the quarter, softening home prices continued to affect many areas of the country and delinquencies and defaults continued to rise across all mortgage product categories as a result,' said Mozilo."

"'Looking to the second half of 2007, we expect difficult housing and mortgage market conditions to persist,' Mozilo added."

From Dow Jones Newswires. "Countrywide said a sharp jump in past-due home-equity loans forced it to write down the value of its 'residual' holdings by $388 million. The lender also noted increased volatility in prices paid by investors who buy mortgages in the secondary market as well as plunging investor demand for bonds backed by risky mortgages."

From Bloomberg. "Mozilo has tightened standards for approving loans to the company's riskiest borrowers as part of a plan to cut subprime lending to as little as 4 percent of total mortgages, half the level at the end of last year."

"Now he must address an increase in missed payments in prime loans, or those granted to borrowers with good credit histories. 'Credit performance has surfaced as a bigger risk factor than we expected,' Morgan Stanley analyst Kenneth Posner wrote."

"'What really surprised people was the guidance,' said Paul Miller, an analyst at Friedman Billings Ramsey Group. 'I don't think any investor is going to be that confident with mortgage banking earnings until '09.'"

The Globe & Mail. "Canadian Imperial Bank of Commerce could be forced to take a hit of about $100-million this quarter because of its exposure to securities related to the U.S. subprime mortgage market, analysts say."

"'The continued weakness in securities related to U.S. subprime housing will likely force CIBC to mark down its exposure to the space, as most of its securities are held in its mark-to-market trading book,' RBC Dominion Securities Inc. analyst André-Philippe Hardy wrote. 'We believe that a $50-million to $100-million markdown is possible.'"

"Corus Bankshares Inc' 2007 second quarter earnings were $42.4 million, down 11% from the second quarter of 2006. 'As has been widely reported, the United States' residential housing market continues to see significant weakness throughout many parts of the market. With a loan portfolio consisting, almost exclusively, of condominium construction and conversion loans, this nationwide slowdown has clearly impacted Corus and its lending business,' said CEO Robert J. Glickman."

"'Evidence of this slowdown can be seen in recent trends in loan originations and loan balances outstanding, as well as credit quality trends. The current quarter's earnings declined as a result of these adversities, and it would not surprise us to see an even greater impact on earnings over the next several quarters, or even years, depending on when the market improves,' said Glickman."

"The slowdown, the company said, is apparent not only in loan originations and loan balances outstanding but also in 'credit quality trends,' or problem loans."

From Reuters. "Building materials maker USG Corp said on Tuesday it expected a 'multiyear downturn' in the U.S. housing market and posted sharply lower earnings as it cut more jobs to trim its wallboard output."

"'The housing recession is entering the second year of what is likely to be a multiyear downturn,' CEO William Foote said in a statement."

"The company, the world's top producer of gypsum wallboard, said its sales and earnings suffered during the most recent quarter by an excess supply of both new and existing homes on the market."

"'The unusually large inventory of unsold homes will depress new construction and put continued pressure on volumes and prices of building materials until the excess inventory is absorbed,' Foote said."

The Chicago Tribune. "In the latest quarter 'the housing market continued to deteriorate,' noted Foote."

"During the latest quarter, Foote said, USG eliminated about 500 salaried positions; combined with earlier cutbacks in hourly staffing, the compahy has cut more than 1,100 jobs over the past twelve months. It has cut back its output, and will shut down an additional 350 million sqare feet of wallboard capacity at its Detroit facilities in the third quarter."

"The disparity in credit behavior between U.S. REITs and homebuilders continued unabated during the second quarter, and will likely persist into the foreseeable future, according to a recent report published by Standard & Poor's Ratings Services."

"U.S. homebuilder prospects darkened, however, as the sector strives to find a trough in the market's current downturn. 'Most rated builders, however, still face very challenging operating conditions, which meant that rating activity in this sector was high and decidedly negative for the fourth consecutive quarter,' said credit analyst Elizabeth Campbell."

"'Our builder rating bias remains emphatically negative,] noted Ms. Campbell. 'Given the sector's ongoing inventory correction and as-yet indeterminate recovery, we expect builders to remain pressured well into 2008, and possibly into 2009.'"

"Home builders had hoped the spring would provide some relief to a troubled housing market, but that key selling season has been a bust and demand has weakened even further so far this summer, Wall Street analysts said."

"'Our recent conversations with builders around the country find that housing demand has continued to wilt in the summer heat, with conditions sequentially worsening in the past four to six weeks,' wrote Deutsche Bank analysts Nishu Sood, Lou Taylor and Rob Hansen in a research note."

"'Pricing pressure persists, with many markets in list-price reduction mode, as builders struggle to find demand that continues to slow as a result of mortgage-market contraction,' they added."

"'Many of the public builders appear headed for break-even and even negative operating margins excluding charges,' said the analysts. The high number of existing homes for sale on the resale market is giving competition to new-home builders, they added."

"'The impact of mortgage market contraction appears to have accelerated in recent months, with builders reporting greater rates of sales loss due to the inability of buyers to qualify for mortgage products currently available,' the Deutsche analysts wrote."

The LA Times. "In its letter to clients, Bear Stearns reminded the rest of Wall Street what was happening with investors' perceptions of mortgage-backed bonds, even those purported to be of high quality."

"Its funds were obliterated, the brokerage said, in part because of 'the unprecedented declines in valuations of a number of highly rated — AA and AAA — securities.'"

"For a AAA-rated bond, a serious decline is a drop in the market price from $1,000 to $950 in a matter of days. It may not look like much, but for a security that had the highest possible credit rating, that's a disaster."

"The Wall Street money-machine known as collateralized debt obligations is grinding to a halt. Sales of the securities dwindled to $9.1 billion in the U.S. this month from $42 billion in June, analysts at JPMorgan Chase & Co. said in a report yesterday."

"'We're walking on thin ice,' said Alexander Baskov, a fund manager who helps oversee $25 billion of high-yield debt in Geneva. 'People are trying to find value and the right price and right now nobody knows what it is. Pretty much everyone is in the dark.'"

"The 10-year U.S. interest rate swap spread widened to a five-year high on Tuesday as concerns about shaky credit markets prompted investors to flee riskier securities for government bonds, analysts said."

"'We are having a flight to quality,' in which investors favor Treasuries over riskier assets including swaps, said Eric Liverance, head of U.S. rate derivatives strategy with UBS. 'Credit in general is blowing out,' he said."

"Soaring defaults in the subprime mortgage market are spreading into the U.S. credit markets, producing a 'sudden liquidity crisis' in the high-yield bond sector, according to widely followed bond manager Bill Gross."

"A lack of confidence has 'frozen' the markets for lending and backed up new junk-bond offerings, and the tide appears to be going out for leveraged equity investors, Gross, manager of the world's largest bond fund at PIMCO, said in an August investment outlook letter."

"'Stuffed!' he said of the current state of the credit markets."

From Broker Universe. "At the SourceMedia Nonprime Symposium in Las Vegas, our roundtable participants said all bets are off when it comes to subprime."

"Moderator Brad Finkelstein: 'During a panel at the conference, Blaise Dietz, CEO of Creative Mortgage Lending, said something that I found interesting. He said wholesalers need to educate their brokers to the new reality out there. Has it been hard for originators to understand that subprime today is not the same as it was on Nov. 1, 2006?'"

"Blaise: 'With the products going away, they are either learning to market better or they're educating their borrowers to what other options they have or they are committing fraud to get that loan placed. It is not just the originators, but the wholesale account executives, they are salesmen also and a lot of them don't understand the changing landscape....It is the new unfolding landscape, and you are either going to educate yourself and your customers, or you're not going to be in this business.'"

"David Matthews, chief information officer, Federal Home Loan Bank of Chicago: 'I suspect a lot of them are leaving the business, just as you saw people leave the business when the prime market fell out. Those that shifted from prime to subprime are now realizing they are not going to make it in subprime and they'll go back to being mailmen or auto mechanics or school teachers or whatever they were before they got into the mortgage business.'"