Some housing bubble news from Wall Street and Washington. Bloomberg,"Frankfurt Trust stopped withdrawals from a fund after clients removed 20 percent of their money since the end of July amid concern about the U.S. subprime loan debacle. The FT ABS-Plus fund, which includes residential mortgage- backed securities and collateralized debt obligations, halted redemptions on Aug. 3, the Frankfurt-based company said today."

"'The situation for the asset-backed securities and CDOs market has gotten much worse in the last few days because of the U.S. real estate crisis,' making it difficult to secure fair prices, the company said."

From Reuters. "Moody's Investors Service on Monday cut its bank financial strength rating on German lender IKB. IKB has become Europe's highest-profile casualty so far of a crisis in the U.S. subprime mortgage market. To stop IKB from unraveling, German banks have joined together to cover the lender's potential losses from the subprime crisis."

From National Mortgage News. "I'll put it bluntly: if you operate a non-depository mortgage firm (lender or servicer) and don't have a deep-pocketed parent or hedge fund as a sugar daddy you're likely to be out of business by year-end, probably sooner."

"In the 20-plus years that I've been covering residential finance I haven't seen a financial meltdown this swift since the S&L crisis of the mid-to-late 1980s."

"One subprime executive who closed his shop a few months ago told me, 'This is a liquidity crunch the likes I have never seen." Meanwhile, the mudslide is rolling downhill from Wall Street to mortgage bankers, to loan brokers, and then the consumer."

"Default rates for non-subprime mortgages will jump in the next year as delinquencies that roiled subprime debt become more commonplace among homeowners with better credit, said Friedman Billings Ramsey Group Inc."

"Late payments of at least 90 days, foreclosures and holdings of seized property among so-called Alt-A mortgages in bonds will probably rise to 3.92 percent in May 2008, from 2.69 percent in May 2007 and 0.89 percent a year earlier, Michael Youngblood, the top mortgage-bond analyst at Friedman Billings wrote."

"'Liberal underwriting was not limited to subprime loans,' said Youngblood. The number of new loans being packaged into bonds rose to a record in 2004 through 2006, increasing the likelihood that defaults will also escalate, Youngblood said."

The New York Times. "The very innovation that made mortgages so easily available, an assembly line process known on Wall Street as securitization, is creating an obstacle for troubled borrowers. As they try to restructure their loans, they are often thwarted, lawyers say, by strict protections put in place for investors who bought the mortgage pools."

"'Securitization led to this explosion of bad loans, and now it is harder to unwind and modify them even where it is in the best interests of both the borrower and the investors,' Kurt Eggert, an associate professor at the Chapman University School of Law in Orange, Calif., said in an interview. 'The thing that caused the problem is making it harder to solve the problem.'"

"More than 60 percent of home mortgages made in the United States in 2006 went into securitization trusts. Some $450 billion worth of subprime mortgages, those made to borrowers with weak credit, went into securitizations last year."

"Fifteen years ago, the last time the housing market ran into stiff trouble, government-sponsored enterprises like Fannie Mae did most of the work pooling and selling mortgage securities. These enterprises readily agree to loan modifications."

"But not so in the private issues pooled and sold by Wall Street, which has fueled the extraordinary growth in the market."

"American Home Mortgage Investment Corp. filed for bankruptcy protection, becoming the second- biggest residential lender in the U.S. to close down this year."

"American Home specialized in mortgages for people who fall just short of top credit scores. 'Their sources of funding have all dried up,' said Mark Power, a lawyer advising some of the more than 100,000 creditors. 'This case is going to be very similar to New Century.'"

"The top five unsecured creditors include units of Deutsche Bank AG, Wilmington Trust Corp., JPMorgan Chase & Co., Countrywide Financial Corp. and Bank of America Corp."

"American Home, in a statement, warned it was unlikely the value of its assets will be enough to repay creditors or leave any equity value for common shareholders."

"The company 'experienced this sudden reversal of its fortunes due to the unanticipated and rather sudden deterioration in the secondary and national real estate markets,' CEO Strauss said in a prepared statement."

"The cost to insure the debt of Countrywide Financial Corp., the largest U.S. mortgage lender, and U.S. brokers with exposure to mortgages, including Bear Stearns Cos., surged on Monday."

"The cost to insure the debt of D.R. Horton, Inc., Lennar Corp. and Toll Brothers Inc. all rose by around 30 basis points to 410 basis points, 261 basis points and 265 basis points respectively, CMA data showed."

"Swap spreads on KB Homes and Meritage Homes Corp. also were around 40 basis points wider at 545 basis points and 725 basis points, respectively."

The Wall Street Journal. "Recently, the nation's largest home builder, D.R. Horton Inc., reported the first quarterly loss in its 15-year history as a public company."

"Yet, only two years ago, Donald Tomnitz, Horton's CEO, declared confidently: 'We can earn our way through any economic cycle, except one like the Great Depression.' The Great Depression hasn't hit, but Horton's earnings have declined more severely than most anyone imagined."

"One big assumption had to do with their cash flow: The common wisdom among some analysts was that builders would turn into 'cash machines' in the event of a housing downturn, because they would pare construction and land buying."

"In reality, most builders haven't been able to stockpile as much cash as expected. That is partly because they have had to keep building large housing developments, even though demand dropped off sharply."

"'The linchpin to our bullish thesis has been the emergence of land constraints,' Citigroup analyst Stephen Kim wrote in a bullish March 2006 research report. 'This will allow the builders to outperform expectations in any given demand scenario.'"

"But as it turns out, some builders still ended up owning too much land. Horton says it has a 5.4-year supply of land. That's up from a 3.5-to-four-year supply of land when the downturn hit."

From Business Week. "In November, 2005, Elizabeth and Armando Motto agreed to pay $540,000 for a newly built three-bedroom house in suburban Clarksburg, Md., near Washington, D.C. Rather than send them to a bank, the builder, Beazer Homes USA Inc. offered to provide a mortgage itself in an arrangement of the sort that helped fuel the long housing boom across the country."

"Beazer, according to the couple, inflated the pair's earnings in loan-application documents by incorrectly stating they were collecting rental income from the house they were leaving. They now regret it. The Mottos moved to Clarksburg, but they haven't succeeded in unloading their previous home in Rockville, Md."

"They have nearly $1 million in mortgage debt on the two dwellings. With $145,000 in family income, Elizabeth says, they are 'on the brink of foreclosure' on both houses. 'We are so broke.'"

The Associated Press. "Lawmakers left Washington for August vacations without passing reforms meant to prevent mortgage-lending abuses like the ones that led to the housing market woes now distressing Wall Street and Main Street."

"'We've been told by some that, if we do this, we'll ruin the market,' said Rep. Barney Frank. 'I think that, if we do this right, we could help the market.'"

"Rep. Brad Miller...said investors will shy away from buying mortgage securities backed by loans to people with shaky credit until there are 'reasonable regulations in place to prevent the kinds of loans that consumers can't possibly repay.'"

"He added: 'It's hard to argue that regulation is going to have a devastating effect on the market because the market has already devastated itself.'"

The Dallas Morning News. "There's a breathless tone to the national fretting about the housing industry's downturn. It goes something like this: It'll spread like a virus and leave the U.S. economy on life support." "Make no mistake, this is a serious time with a lot of people in a lot of pain. But it's also time to recognize another looming threat: overzealous policymakers making matters worse."

""Freddie Mac CEO Richard Syron said he was wary of calls for Freddie Mac and fellow mortgage finance company Fannie Mae to buy loans and securities no longer favored by private investors, the New York Times said. With credit pools drying up 'there are some loans that are in difficulty,' the Times quoted Syron as saying in a telephone interview."

"'There are other loans that probably should never have been made and providing more liquidity will make that situation worse in the long term,' Syron told the Times."

The Daily News. "While testifying before Congress last month Fed Chairman Ben Bernanke...stuck to the opinion that the badness was not spreading to the broader mortgage sector or consumer spending."

"'So what can we look for in the Fed's statement?' said analyst Greg McBride at Bankrate.com. 'Expect further backpedaling as it pertains to the housing market. What in January the Fed termed as stabilization, in March became an adjustment, then an ongoing adjustment. Might the term correction that Bernanke uttered before Congress two weeks ago appear in the statement?'"

The St Petersburg Times. "Claudia Vinson Johnson's savings were decimated as risky mortgage-backed securities in her account were devalued and her investments were sold to meet margin calls. The broker who put her into the high-risk investments: Steven Shrago, her neighbor across the street."

"'One day you wake up thinking you have a little bit of financial security and by mid afternoon, you have none,' she said."

"Johnson is one of dozens of clients of Brookstreet Securities Corp. who suffered huge losses in June on risky debt securities that were sold to them as safe investments. Brookstreet, which was based in Irvine, Calif., collapsed."

"To say the least, it's put a chill in a once neighborly relationship. Shrago, who didn't respond to attempts to contact him, keeps his blinds closed."

From ABC News. "Home foreclosures are up 59 percent from last year while loan defaults continue to mount, and that has mortgage lenders zipping up their once generous coffers."

"'This was a classic case of irrational exuberance,' said Alan Murray, the executive editor of the Wall Street Journal. 'Lenders were giving away way too much money on easy terms. People borrow too much. They bought houses they shouldn't be buying and now they are paying the price for that.'"