Some housing bubble news from Wall Street and Washington. "Fannie Mae executives on Friday defended a change in the way the mortgage finance company calculates losses on home loans, responding to analysts' concerns. Using the new method, it reported, on an annual basis, a credit-loss ratio of 4 basis points for the first nine months of this year -- meaning the company lost money on four of every 1,000 mortgages it holds on its $2.4 trillion book."

"Yet the Fortune article points out that if the old method were retained, the credit-loss ratio for that period would be 7.5 basis points -- far exceeding Fannie Mae's forecasts."

"Several analysts asked the executives in the conference call why the company couldn't disclose what proportion of high-risk mortgages it is able to refinance into fixed-rate loans and save from default. 'The problem is that we don't have the underlying information,' said Credit Suisse analyst Moshe Orenbuch."

From Dow Jones Newswires. "When Fannie Mae released its earnings last week for the first three quarters of the year, it reported an additional unrealized loss of $955 million in the value of private-label securities backed by subprime and Alt-A mortgages through the end of the third quarter. This was in addition to $376 million the company had previously accounted as a loss for these securities this year."

"The company said it hadn't recorded 'any impairment' on the $955 million in securities, "as they continue to be investment-grade and we have the intent to hold these securities until the realized loss is recovered or the securities mature."

From Bloomberg. "Freddie Mac, the second-largest source of money for U.S. home loans, joined Fannie Mae in introducing or raising fees on mortgages the company buys from lenders because of the increased risks in slumping housing and mortgage markets."

"Freddie Mac is primarily setting new fees for mortgages made to borrowers with credit scores below 680, whose loans exceed 70 percent of their property's value. The changes take effect March 1."

"Freddie Mac's changes are 'in response to continuing volatility and turmoil in the mortgage market, including the deteriorating performance of higher-risk mortgage products,' the company said in a letter on its Web site."

"It also said mortgages from markets with falling prices must now have loan-to-value ratios at least five percentage points below normal requirements for mortgages with the same attributes."

The Financial Times. "Residential Capital, the beleaguered mortgage lending arm of GMAC, said it was close to breaching its bank loan covenants, sending the price of its debt tumbling."

"ResCap's bonds were among the most frequently traded in the debt market on Thursday, tumbling to nearly 60 cents on the dollar, down from about 64 cents on Wednesday and about 80 cents a month ago, according to MarketAxess."

"Kathleen Shanley, analyst at GimmeCredit, said: 'If credit conditions in subprime continue to deteriorate, ResCap may have trouble staying in compliance with its bank debt covenants.'"

"She said the company's non-performing construction loans had jumped to $324 million in the third quarter, up from just $20.9 million a year ago."

From MarketWatch. "Huntington Bancshares said Friday that it would take up to a $300 million charge in the fourth quarter, becoming the latest financial institution to report the impact of mortgage loan losses. The Columbus, Ohio-based group is feeling pain not through loans made directly to customers but rather from lending to another institution."

"The charges are related to loans made by Huntington's Sky Financial unit, a Pittsburgh-based bank that Huntington bought in July for $3.6 billion. Sky had lent to New York-based Franklin Credit Management, a firm that specializes in investing in the riskiest of mortgages."

"Franklin invests in mortgages for multifamily homes that don't meet Fannie Mae and Freddie Mac standards. Most of Franklin's loans are so called 'no-doc' loans, where the borrower is not required to document income."

"Also Thursday, Franklin delayed its third quarter earnings report and said it would stop originating loans after Huntington, its main source of bank funding, cut off credit."

The Canadian Press. "The Bank of Montreal is booking $320 million in writedowns arising from disorder in world credit markets, joining the array of big banks hurt by the U.S. subprime mortgage crash."

"Analyst Michael Goldberg of Desjardins Securities noted that BMO's decision to support the SIVs with up to $1.6 billion is 'an indication that there are no other willing buyers and BMO feels that it has an obligation as sponsor to support these two SIVs.'"

"The net asset value of structured investment vehicles, companies that borrow short term to buy higher yielding securities, has fallen to 69.7 percent as the credit slump erodes their holdings, Fitch Ratings reported."

From Reuters. "A wave of recent ratings cuts may mark the start of nearly half a trillion dollars in losses for banks and pension funds, as complex securities bring the U.S. subprime mortgage crisis crashing back to Wall Street."

"Derivatives once heralded for spreading risk and underpinning the resilience of financial institutions are rapidly deteriorating, threatening to choke lending. In the past two weeks ago, more than a dozen collateralized debt obligations have suffered a technical default. Standard & Poor's on Wednesday said it may cut four more CDOs, due to even more 'Event of Default' notices as write-downs increased for what was perceived to be the safest part of the bonds."

"'Despite their high initial ratings, even AAA rated securities can be at risk of losing some or their entire principal,' according to Jeffrey Rosenberg, head of credit strategy at Bank of America in New York. Write-downs of CDO positions are 'increasing fears of the expanding implications of subprime losses to the financial system.'"

"Banking auditors are watching carefully to ensure bank valuations based on in-house mathematical models are not, in the phrase coined by Warren Buffett, 'mark to myth.'"

"'You are definitely seeing an environment in which the audit firms are being more rigid and conservative in their approach to valuation,' said Alex Willmot-Sitwell, co-head of global investment banking at UBS. 'I think that's inevitable in an environment where there is bound to be a greater degree of scrutiny and where we are all aware of the potential risks vis-a-vis litigation etc.'"

"For some CDOs, the only buyer, and a reluctant one at that, has been the bank that created and sold it in the first place. 'Banks are not in the business of holding these products for ourselves,' said a senior European banker. 'What is the value of a tennis racket for a rugby player?'"

"That means the few market prices available for comparison for many CDOs are based on fire-sale conditions. Nevertheless, 'if there is a price out there, it cannot be ignored,' said Colin Martin, a partner at KMPG's FS Technical Advisory. It is extremely difficult to prove that prices are the result of a fire sale, he added."

"If a hedge fund sells at 35 cents on the dollar when a bank sees the value at 65, or if the last comparable trade took place weeks ago, 'you can't ignore that a trade has happened,' said an accountant at a major European bank."

"For the first in at least a decade, the world's biggest financial institutions are paying more to borrow in the corporate bond market than industrial companies."

"Bonds of banks, brokerages and insurance companies yield 1.49 percentage points more than U.S. Treasuries, matching a record high set in October 2002, according to indexes compiled by Merrill Lynch & Co."

"Investors are demanding extra compensation for the risk of owning Citigroup Inc., Merrill Lynch and Barclays Plc on concern that the $50 billion in losses already reported from subprime mortgages will increase."

The Wall Street Journal. "Even the Trump name isn't bigger than the calamitous condo market. Donald Trump's reputation as a real-estate developer could take a hit as some condominium projects emblazoned with his famous name run into trouble."

"At Trump Tower Tampa, which began its marketing in 2005, sales initially soared. The local development company, SimDag LLC, sold all 192 units and then, as the market skyrocketed, returned buyers' deposits, raised the units' prices and sold out again."

"Many of the buyers feel that they were led to believe that he had a much larger stake. 'The only reason we bought into this was because of Trump,' says Don Wallace, whose wife has interests in two units. 'He's bashing Rosie O'Donnell, and we're twisting in the wind.'"

"Joseph Stiglitz, a Nobel-prize winning economist, said the U.S. economy risks tumbling into recession because of the subprime crisis and a 'mess' left by former Federal Reserve Chairman Alan Greenspan."

"'Alan Greenspan really made a mess of all this. He pushed out too much liquidity at the wrong time... He encouraged people to take out variable-rate mortgages,' Stiglitz said in an interview in London today."

"Stiglitz, who stepped down as the World Bank's chief economist in 2000, and now works as professor of economics at Columbia University, estimated U.S. consumers borrowed up to $950 billion last year against the value of their homes to finance spending."

"'That game is over,' Stiglitz said. 'As house prices are going down, people are not going to be able to take more money. We are looking at a major slowdown.'"

From Marketplace. "In an effort to make sure the subprime mortgage meltdown doesn't happen again, the House was set to vote today on a bill that would lay down rules for lending. Stacey Vanek-Smith reports."

"STACEY VANEK-SMITH: Three years ago, Lucy Hadley was looking for a condo. She'd been saving up and the market was going gangbusters. But it wasn't easy to buy in super-expensive Los Angeles. Hadley had excellent credit, but her salary was on the low side, so her bank wouldn't offer her the roughly 400 grand she needed to buy a one-bedroom apartment."

"LUCY HADLEY: 'I didn't owe any credit cards or anything, cause I'm kind of sticky about that kind of stuff. I couldn't understand why I couldn't get a loan.' So Hadley turned to a small, subprime lender. She says she started getting uncomfortable when she saw how the lender was trying to qualify her for the loan she wanted."

"HADLEY: 'They find money that you don't even know you have. They looked at my savings, my 401K and all that. They include all of that and they consider that part of your income. And they would say stuff like, you know, you're in a prime area and property is going to keep going up and up and up, and you'll be building up equity.'"

"The interest on Hadley's loan will soon triple to more than 11 percent, and her condo has gone down in value."

"The thing is, a lot of the organizations doling out the shadiest loans were not banks, and they won't have to follow federal rules. David Lereah is the former chief economist for the National Association of Realtors."

"DAVID LEREAH: 'It was the mortgage brokerage companies that were out there trying to sell a lot of these irresponsible type loans.'"

"Still, Lereah says reigning in the banks will make a big difference. That's because there won't be many organizations left to buy up risky loans from lenders like Countrywide. Lereah says the bill is also an important feel-good measure."

"Meanwhile, homeowner Lucy Hadley needs to take out another loan to cover her new mortgage payments. But she's scared she'll end up in an even deeper hole. HADLEY: 'I don't know how high my loan could go. I really don't. With all that paperwork, I don't understand. I know it's going to be difficult, so...'"