Some housing bubble news from Wall Street and Washington. "The Pending Home Sales Index based on contracts signed in June...is 8.6 percent below June 2006 when it stood at 112.0. The PHSI in the West was 5.5 percent below a year ago. In the Northeast, the index is 2.4 percent lower than June 2006. The index in the South was 12.7 percent below a year ago. In the Midwest, the index was 8.2 percent lower than June 2006."

"The PHSI was 5.0 percent higher from the downwardly revised May index of 97.5. 'It is too early to say if home sales have already passed bottom,' said Lawrence Yun, National Association of Realtors senior economist."

From Bloomberg. "Bear Stearns Cos., the manager of two hedge funds that collapsed last month, blocked investors from pulling money out of a third fund as losses in the credit markets expand beyond securities related to subprime mortgages."

"The latest developments signal that the slump in the subprime mortgage market may not be 'contained,' as officials including Treasury Secretary Henry Paulson have said."

"'You don't necessarily have to be a subprime fund now to be having problems,' said Bryan Whalen, a money manager in Los Angeles at Metropolitan West Asset Management, which oversees more than $21 billion in fixed-income assets."

"'It's uncertain when we will see the full impact' from the subprime fallout, Craig Overlander, co-head of global fixed-income at Bear Stearns, said in an interview today. 'We can stress test, we can come up with possible scenarios but really we won't know until we see what's coming in the mortgage pipeline, the forms they are coming and the environment in which they will reset.'"

"Bear Stearns yesterday froze its $900 million Asset-Backed Securities Fund. Less than 0.5 percent was invested in debt linked to subprime mortgages."

"'Markets are still very, very shaky, and it doesn't look like there will be any quick recovery from these levels,' said Jochen Felsenheimer, head of credit strategy at Unicredit SpA in Munich. 'The next negative headline appearing is just a matter of time.'"

The Associated Press. "Two Bear Stearns Cos. hedge funds heavily exposed to the flagging mortgage industry filed for bankruptcy protection late Tuesday, two weeks after the company told investors one was essentially worthless and the other had lost more than 90 percent of its value."

"The funds were squeezed after Bear Stearns made wrong-way bets on the home mortgage market and was caught as loans to risky investors began to default. Bear Stearns is the nation's fifth-largest investment bank and specializes in mortgage-backed securities.'

"American Home Mortgage Investment Corp. edged closer to bankruptcy Tuesday, as its solvency woes killed a rally on Wall Street and renewed fears of worsening credit quality in the troubled mortgage market."

"The struggling mortgage lender said its financial backers have essentially pulled the plug. The Wall Street banks that lend American Home Mortgage money for home loans, which include firms like UBS AG, Bear Stearns Cos., and JPMorgan Chase & Co., will not extend the company any more money, and some have demanded back they money they have lent."

"American Home Mortgage said it has over the last three weeks paid 'very significant' margin calls, which occur when a lender demands compensation after a borrower's collateral loses value. The company still faces 'substantial' unpaid margin calls."

"The reason American Home Mortgage's lenders are balking is the mortgage loans that act as collateral for the company's credit lines have sunk in value. Almost none of American Home Mortgage's $58.9 billion in loans last year were classified as subprime."

"Separately, the ratings agency Moody's Investors Service said it is increasing its assumptions for losses on pools of Alt-A loans. As delinquencies in Alt-A debt mount, Moody's said it sees signs that Alt-A loans were underwritten using similar standards to subprime loans."

"Moody's Investors Service described some so-called Alt A mortgages as no better than subprime home loans, and said it will change how it rates related securities after failing to predict how far delinquencies would rise."

"The ratings company said today its expectations for losses on Alt A mortgages will increase by 10 percent to 100 percent, depending in part on how many mortgages in a loan pool were extended to borrowers with low credit scores and little money for down payments."

"It's also raising loss expectations on loans in which borrowers don't fully document incomes or have 'limited homeownership experience.'"

"'Actual performance of weaker Alt-A loans has in many cases been comparable to stronger subprime performance, signaling that underwriting standards were likely closer to subprime guidelines,' Marjan Riggi, Moody's senior credit officer, said in a statement. 'Absent strong compensating factors, we will model these loans as subprime loans.'"

"About $400 billion in Alt A mortgages were packaged into bonds in 2006 with about $40 billion of those mortgages sharing subprime characteristics, Moody's said."

"'What is triggering this is the weakness of the housing market and the weakness of the mortgage market,' said Warren Kornfeld, a managing director in Moody's structured finance group."

"The worst Alt A loans account for 25 percent to 50 percent of the increased loss projections, Kornfeld said, even though they make up only 10 percent of the principal."

"More than $800 billion of subprime mortgage bonds and $700 billion of Alt A bonds are outstanding, according to a March report by Zurich-based Credit Suisse Group. Of the Alt A bonds, more than $200 billion are backed by option ARM bonds."

The Journal News. "The parent company of Columbia Home Loans LLC in Valhalla, which lost $12.6 million in the first half of 2007 amid problems with its subprime mortgage portfolio, said it plans to close the operation by Sept. 30.""Michael J. Fitzpatrick, chief financial officer of the parent, OceanFirst Financial Corp...said earlier this year it would close its subsidiary. Columbia’s president, Robert M. Pardes, resigned and a number of staffers who concealed losses in the group’s subprime mortgages were dismissed, OceanFirst said."

"About 41 percent of the $728.3 million in mortgages that Columbia originated last year for OceanFirst were considered subprime. Because of early defaults by consumers, Columbia was forced to buy back a significant portion of its subprime portfolio from investors to whom it had sold the loans."

From Reuters. "Homebuilder shares fell sharply Wednesday as credit concerns mounted due to the widening effect of the crumbling U.S. housing market."

"According to several sources, there were rumors in the market earlier in the day that Beazer Homes USA Inc. was facing a possible bankruptcy or that an SEC investigation into Beazer was becoming more serious than expected. Beazer issued a statement denying the rumors."

From the Age. "An announcement from Macquarie Fortress Investments, which said the 'spill-over' from the low-quality subprime mortgage market had affected the senior loan market, seemed to set off a domino effect."

"The first two funds had invested heavily in packaged-up mortgages that were offered to people with low credit ratings, but the third fund has less than 1 per cent of its investment allocated to the sector."

"Bell Potter Securities' director of research, Peter Quinton, confirmed the 'turmoil' had spread to the broader mortgage market in the US, and to non-investment-grade corporate bonds. But he said only 6 per cent of the S&P 500's market capitalisation was exposed to that sector and had the potential to 'blow up.'"

"'There is little or no evidence of any impact on investment-grade corporate bonds,' Mr Quinton said. 'But we're still stuck with the problem that there will be companies that are exposed to that end of the market and until they tell us (about it), we don't know.'"

"Treasurer Peter Costello, speaking from the Asia-Pacific Economic Co-operation forum meeting in Queensland, acknowledged the 'very high level of defaults' in the US subprime market. 'Players in that market will therefore have to suffer the consequences of those defaults,' he said."

From MarketWatch. "Financial markets understand that the Federal Reserve won't respond quickly to a typical market upset such as last week's sharp stock sell-off, St. Louis Fed President William Poole said Tuesday."

"The Fed should only act "in due time" if evidence accumulates that the market drops could undo price stability or low unemployment, or when financial market developments threaten market processes themselves, Poole said."

"In his speech, Poole said the best policy for the Fed is to be cautious and try to understand the reasons for the market turmoil. If the Fed is 'overactive' in responding to market developments, this would set precedents to destabilize markets in the future, he said."

"'If the market believes that the Fed is always primed to adjust policy, then market participants will spend more time trying to second-guess the Fed than trying to understand what is happening to business and household behavior,' Poole said in a speech."

"Poole said he was speaking only for himself, but his views add to the growing sense that the Fed under new chairman, Ben Bernanke, is trying to move away from the so-called 'Greenspan Put.'"

"Poole said last week's volatile trading 'was a perfect illustration' for the market. 'The Fed doesn't know, and market participants do not know either, the full implications of last week's stock market declines and increases in risk spreads,' Poole said."