Some housing bubble news from Wall Street and Washington. Associated Press, "Construction of new homes fell to the lowest level in more than a decade in July as builders continued to struggle with the steepest housing slump since 1991. The Commerce Department reported Thursday that construction of new homes and apartments dropped 6.1 percent last month to a seasonally adjusted annual rate of 1.38 million units."

"That was down 20.9 percent from the pace of activity a year ago and represented the slowest pace since January 1997."

"Housing construction fell in all parts of the country except the Midwest which posted a 2.6 percent increase in July. Construction starts were down 11 percent in the South, 3.7 percent in the West and 1.3 percent in the Northeast."

From Bloomberg. "Confidence among home builders fell this month to the lowest level since 1991, and sales of existing homes fell in 41 states during the second quarter, according to reports released Wednesday."

"The National Association of Home Builders/Wells Fargo index of builder confidence declined to 22 from 24 in July, the association said, as cancellations and more restrictions on lending took a toll. A reading below 50 means most respondents view conditions as poor."

"The gauge has decreased for six consecutive months, and the August reading was the second-weakest since the survey's inception in 1985. It hit a record low of 20 in January 1991, when the housing market and economy were both in recession."

"The group's measure of single-family home sales declined to 23 from 24 in July. The index of buyer traffic dropped to 16 from 19. A measure of sales expectations for the next six months fell to 32 from 34."

"'It's not a terribly encouraging sign,' said David Seiders, chief economist of the builders group."

"'Builders realize that issues related to mortgage credit cost and availability have become more acute, filtering some prospective buyers out of the market and prompting others to delay their decision to purchase a new home,' said NAHB President Brian Catalde. 'Builders are responding by trimming prices and stepping up non-price incentives to bolster sales and limit cancellations, although we’re dealing in a difficult market environment.'"

"'There is no question that problems in the subprime mortgage sector have spilled over to other components of housing finance, including the Alt.-A and jumbo markets, delaying a revival of the single-family housing market,' added NAHB Chief Economist David Seiders."

The Street.com. "Many homebuyers in recent years took out exotic mortgages that ultimately backfired. This raises the question of why such booby-trapped financing was available at all."

"Last week, TheStreet.com reported that several of nation's largest lenders, such as Countrywide Financial, were still offering the types of loans at the center of the current meltdown in the subprime mortgage market."

"The percentage of option-arm loans issued has ballooned to the current level of about 7% in the first quarter of 2007, up from less than 0.25% of loans originated in the first quarter of 2002, according to estimates by TheStreet.com."

From CNN Money. "Embattled Countrywide Financial, the nation's No. 1 writer of mortgage loans, was forced to tap an $11.5 billion line of credit Thursday to address its looming liquidity crunch, and it said it is toughening the underwriting standards on the home loans it will make going forward."

From MarketWatch. "Moody's Investors Service downgraded the senior debt ratings of Countrywide Financial on Thursday and said that it may lower them again to below investment grade."

"'The downgrade of Countrywide's ratings reflects significant diminution in the company's liquidity and debt market access due to the stresses being experienced in a wide array of single-family mortgage markets, stresses that have caused Countrywide to fully draw its committed back-up bank lines,' Philip Kibel, a Moody's analyst, said."

From Reuters. "The cost of insuring the debt of Countrywide Financial Corp. and Residential Capital LLC leaped on Thursday on new concerns about Countrywide's liquidity and the state of the mortgage market."

"'There are a lot of measures that they can take before filing -- selling mortgage holdings in the pipeline, slowing originations, and most importantly, talking to third parties about an equity investment,' said Ricardo Kleinbaum, analyst at BNP Paribas in New York."

"However, 'it's not that they are too big too fail,' he said."

The Arizona Daily Star. "First Magnus Financial Corp., a mortgage lender that is one of Tucson's only locally based national firms and one of the area's major employers, is no longer writing loans as of this morning."

"An e-mail Wednesday evening told branch managers of Great Southwest Mortgage, the retail arm of First Magnus, that the parent company was no longer funding loans. 'We will not be funding loans tomorrow,' wrote Erik Lutz, the president and founder of Great Southwest."

"Australia's Rams Home Loans Group Ltd. failed to refinance A$6.17 billion ($5 billion) of short- term U.S. loans, forcing the lender to seek emergency funding."

"The company...touts loans for as much as 100 percent of the purchase price of a home under the slogan 'No deposit? No worries!'"

"'Lenders globally who rely on commercial paper for funding will be hurt as the liquidity taps are turned off,' said Craig Saalmann, credit strategist at JPMorgan Chase & Co. in Sydney."

"Fannie Mae's profit for 2006 dropped 35% as the mortgage-finance giant spent much of the year dealing with a weakening housing market as well as administrative costs tied to its accounting scandal, financial results showed Thursday."

"In a statement, CEO Daniel Mudd characterized 2006 as a 'rebuilding year' for Fannie. Downward pressure on home prices during the year led to higher credit losses, Mudd noted. He also said continuing strain in the housing market will probably boost Fannie's credit loss ratio this year."

"Fidelity Investments, Franklin Resources Inc. and Kensington Investment Group Inc. are the biggest losers in a decline by U.S. real estate funds that wiped out $13 billion in the past three months."

"Jeremy Grantham, who helps oversee $150 billion as chairman of money manager Grantham, Mayo & Van Otterloo, said declines in real estate investment trusts are a result of the rout in the mortgage market."

"Record defaults of subprime loans...have deepened the housing slump and decreased demand for REITs, set up for individual investors to own commercial property such as offices, malls and hotels. 'With REITs, the contagion is directly from the housing market,' he said."

"French President Nicolas Sarkozy and Europe's financial regulator called for a probe into Moody's Investors Service, Standard & Poor's and other ratings firms criticized for underestimating the risk of subprime debt."

"The New York companies face scrutiny after failing to cut their ratings on bonds backed by subprime mortgages until July, when some of the securities had already lost more than 50 cents on the dollar."

"'We have to ask ourselves the exact role rating agencies should play in mapping risks,' Sarkozy said. 'Their role, which allies the creation of these products and the risk assessment, should be submitted to a careful examination.'"

From Marketplace. "The European Commission is investigating credit-rating agencies on claims that they failed to warn investors about subprime risks."

"There are...concerns. Among them that the subprime mortgage market might not have grown so large if the credit ratings had not been so favorable. And there's another worry about a potential conflict of interest, says David Shellock of The Financial Times."

"David Shellock: 'There could be a problem, because these rating agencies are actually employed by the banks issuing the securities, which are backed by subprime mortgages. Therefore, there might be a bias involved there.'"

"The rating agencies not only face a European probe. Congressional hearings on their performance are due to begin next month."

"Toll Brothers Inc., the largest U.S. luxury-home builder, said Aug. 8 that third-quarter revenue dropped 21 percent as the new credit restrictions reduced the pool of potential buyers."

"'With the uncertainties roiling the mortgage markets right now, the pace of home sales could slow further until the credit markets settle down and sort themselves out,' Robert Toll, CEO, said in a conference call with analysts. 'If the economy gets worse, I think that you could see a much lengthier downturn for housing.'"

"William Poole, president of the St. Louis Federal Reserve Bank, said the subprime mortgage rout doesn't threaten U.S. economic growth, and only a 'calamity' would justify an interest-rate cut now."

"Poole, who confers regularly with regional business contacts and votes on rates at the Fed this year, said in an interview yesterday that 'no one has called up and said the sky is falling.'"

"'It's premature to say this upset in the market is changing the course of the economy in any fundamental way,' Poole said. 'If the Federal Reserve were to act when it turns out there is no impact, then clearly the market would say these guys really don't have the intelligence they need to have a policy actually based on solid evidence.'"

"Poole acknowledged that the credit-market turmoil will 'stretch out' the 'adjustment' in the housing industry. He said he couldn't predict how long the downturn will last."

"He also conceded that speculation Countrywide Financial Corp., the biggest U.S. home lender, may go bankrupt shows the mortgage crisis is deeper than previously thought. There is 'a sort of credit crunch' in place affecting housing and some types of corporate paper, he said."

"'I don't see any impact as yet on the real economy or on the inflation rate,' Poole said. 'Obviously, there could be an impact, but we have to rely on some real evidence.'"

"'There's no way the Fed is going to reduce interest rates before the meeting,' said former Fed Governor Lyle Gramley. 'Bill is just being realistic.'"

"U.S. Treasury Secretary Henry Paulson said the turmoil in global markets will exact a penalty on U.S. growth but the financial system and economy was strong enough to withstand it without provoking a recession."

"'The economy and the markets are strong enough to absorb the losses,' Paulson told the Wall Street Journal."

"Paulson also said the repricing of risk in markets should not surprise anyone and was inevitable, and that nothing should be done to guarantee market players against losses or restrain them from taking risks."

"'When you have periods of benign markets, particularly in situations where parts of markets and the economy are growing at levels that are unsustainable, market participants aren't going to be as vigilant as they should be,' he was quoted as saying."

"'One of the natural consequences of the excesses is that some entities will cease to exist,' he said."