Som housing bubble news from Wall Street and Washington. Associated Press, "Shares of MGIC Investment Corp. plummeted more than 30 percent Wednesday, striking a 15-year low, after the nation's largest mortgage insurance company said paid losses could reach $2 billion this year. By the end of 2007, MGIC said it had 107,120 delinquent loans, an increase of about 16,000 delinquencies from the end of the third quarter."

"At the end of 2007, MGIC had $211.7 billion in insurance in force. Last month, MGIC said it would limit coverage for borrowers with poor credit and higher risk loans. The company said it it would charge more for some loans in soft markets like Florida and California."

From Bloomberg. "American International Group Inc., the world's biggest insurer, will bail out its Nightingale Finance structured investment vehicle, according to Moody's Investors Service."

"AIG Financial Products Corp., a unit of the insurer, will either buy the SIV's $2.2 billion of senior debt or replace it with loans, Moody's said. 'Any realisation of current or future mark-to-market losses will be avoided given the support of AIG Financial Products, provided that AIG FP remains a going concern,' the ratings company said."

"Nightingale was set up in May by Banque AIG, a banking unit owned by the insurer. The SIV has $49 million at risk from subprime loans through $306 million of collateralized debt obligations."

"SunTrust Banks Inc., the Atlanta- based bank forced to prop up two of its money-market funds, said profit was almost wiped out by costs from the bailout and home loan defaults. The company spent $1.4 billion to buy distressed assets from the money funds."

"SunTrust expects higher loan losses and late payments this year, mainly from loans to residential builders and individuals with home equity and 'Alt-A' home loans who didn't qualify for prime loans, CEO James Wells said. Most of the overdue loans are centered in Florida and Atlanta, he said."

"'It clearly wasn't the news I was hoping to deliver this morning,' Wells said on a conference call today. '2008 will be a tough one for loan and revenue growth.'"

"SunTrust set aside $356.8 million for credit losses, citing an increase in overdue mortgage loans and falling home values. That was more than double the $147 million in the third quarter."

"Non-performing loans, those no longer paying interest, climbed to $1.46 billion from $1 billion. 'Home-equity lending is one of the Achilles' heels for SunTrust' said Chris Marinac, an analyst at FIG Partners in Atlanta."

From Reuters. "Downey Financial Corp reported a fourth-quarter loss, hurt by higher provision for credit losses as it continues to deal with a weak housing market."

"Downey reported a $218.2 million increase in provision for credit losses for the quarter."

The Street.com. "The private mortgage insurance industry is under severe pressure from rising delinquencies and mounting losses. Now questions are swirling about how a potential blow-up in that sector will affect Fannie Mae."

"Fannie Mae...operates with the understanding that the insurers will pay it back.If one of these insurers takes a massive hit, then Fannie Mae's underwriting standards may come under scrutiny, and the firm may be forced into buying fewer high-LTV mortgages in the future."

"In a recent research note, CIBC analysts said the 'highest losses will be driven by LTVs, not FICO scores.'"

"'Today, as a higher percentage of people own homes and many of them have taken on 'too much house' or high LTV loans, things are different,' CIBC analyst Meredith Whitney wrote. 'Many previously considered 'prime' customers who took on 80+% LTVs are performing closer to sub-prime loans.'"

"Fannie Mae has $227 billion of exposure to mortgage loans in which the LTV ratios are greater than 90%. Overall, about 19% of the company's $2.4 trillion single-family mortgage book of business has private mortgage insurance or some other form of credit enhancement."

"Ohio's attorney general has sued mortgage lender Freddie Mac, accusing the lending giant of defrauding the state's pension fund by systematically investing in sub-prime home loans."

"Attorney General Marc Dann alleges that Freddie Mac, formally the Federal Home Loan Mortgage Corp., 'secretly and intentionally participated in one of the largest housing investment deceptions in modern U.S. economic times.'"

"Dann said the lawsuit sends 'a loud and clear message to Wall Street that this type of fraud and manipulation will not be tolerated by the people who live on the Main Streets that are being devastated by what Freddie Mac has done.'"

The North County Times. "Real estate executives said during a Tuesday conference that investors need to position themselves to survive a tumultuous economy."

"One example of bubble-era creative restructuring that speakers blamed a credit meltdown on was collateralized debt obligations, securities that are sometimes backed by subprime loans with the highest credit ratings because of a complicated mathematical model, which was used, turned out to be inaccurate."

"'Some guy put some numbers into a computer model and reverse-engineered it so it fit what the boss wanted to hear,' said Burland East, managing principal for Silver Portal Capital. 'It was a collaboration of stupidity.'"

"East said the fallout from the subprime mortgages gone bad and the housing crisis will take a stark toll on real estate; he expects 75 percent of homebuilders to enter Chapter 11 bankruptcy and land will sell for 10 to 20 cents on the dollar."

"As a cause for the housing depression, East pointed to younger financial workers who failed to identify and avoid the bubble."

"'Every single cycle is the same. It's like a dog that gets into the trash can. You scold it and it doesn't go into the trash can for 15 minutes,' East said. 'But then it forgets and goes right back into the trash can. That's the market.'"

"Speakers at the conference said mortgages currently are more difficult to get, take longer to process and the collateralized debt obligation market has evaporated."

"'One anecdote I've heard is, 'We're doing the deals that are low-hanging fruit and anything that's not, is put at the back of the line. And if we don't get to them, we don't care,' said Janice Sears, managing director for Bank of America."

"The conference's keynote speaker, John Robbins of Wachovia Securities, said proposed legislation that allows bankruptcy judges to alter mortgage terms would add $3,000 to $4,000 in costs to the borrower for every mortgage."

"'It says when the United States feels like it, it can negate any contract,' said Robbins, managing director for Wachovia. 'You'll kill the U.S. mortgage-backed securities market if you do that.'"

"The Federal Reserve swooped onto the scene Tuesday, flexed its muscles with a surprise rate cut to calm panicky financial markets and flew away promising to return again soon."

"But it left behind bystanders more confused than ever about the Bernanke Fed and worried that, as superheroes go, this Fed looks confused and weak. William Sullivan, chief economist at JVB Financial, said the Fed looks simply 'bewildered' by credit market developments."

"Another reason for concern is that the Fed's power to cut interest rates helps the economy but...have been offset by tightening lending standards as banks are reluctant to lend. Home prices are declining, home inventories are rising and securities tied to the mortgage market have caused credit markets to just shut down."

"'A rate cut is not anti-matter. It doesn't take 19,000 existing home sales off the market in Fort Myers, Fla., and it doesn't eliminate CDOs with huge holes in their valuations,' said Robert Brusca, chief economist for FAO Economics."

The New York Times. "Until a few months ago, it was accepted wisdom that the American economy functioned far more smoothly than in the past. Economic expansions lasted longer, and recessions were both shorter and milder. Inflation had been tamed. The spreading of financial risk, across institutions and around the world, had reduced the odds of a crisis."

"Back in 2004, Ben Bernanke, then a Federal Reserve governor, borrowed a phrase from an academic research paper to give these happy developments a name: 'the great moderation.'"

"These days, though, the great moderation isn’t looking quite so great — or so moderate."

"The recent financial turmoil has many causes, but they are tied to a basic fear that some of the economic successes of the last generation may yet turn out to be a mirage. That helps explain why problems in the American subprime mortgage market could have spread so quickly through the world’s financial system."

"The great moderation now seems to have depended, in part, on a huge speculative bubble, first in stocks and then real estate, that hid the economy’s rough edges."

"Everyone from first-time home buyers to Wall Street CEO's made bets they did not fully understand, and then spent money as if those bets couldn’t go bad. For the past 16 years, American consumers have increased their overall spending every single quarter, which is almost twice as long as any previous streak."

"The...problem is that real estate and stocks remain fairly expensive. This shows just how big the bubbles were: despite the recent declines, stock prices and home values have still not returned to historical norms."

"Until 2000, the relationship between house prices and rents remained fairly steady. The same could be said about house prices relative to household incomes and mortgage rates. But the boom of the last decade changed this entirely."

"Consumer spending kept on rising for the last 16 years largely because families tapped into their newfound wealth, often taking out loans to supplement their income. This increase in debt — as a recent study co-written by the vice chairman of the Fed dryly put it — 'is not likely to be repeated.'"

"'What people have done is make an assumption that these prices could continue rising at the rate they had been,' said Ed McKelvey, an economist at Goldman Sachs. 'And that does seem to have been an unreasonable assumption.'"