Some housing bubble news from Wall Street and Washington. Associated Press, "Sovereign Bancorp Inc. said Monday it expects to take about $1.76 billion in charges in the fourth quarter related to a range of issues, from goodwill impairments to rising loan-loss provisions. The Philadelphia-based bank will record a non-cash impairment charge of $180 million on the ownership of Fannie Mae and Freddie Mac preferred stock."

"The impairment, loss provisions and losses are all tied to the continued deterioration of the housing market and rising defaults among home loans."

"M&T Bank Corp. said Monday fourth-quarter earnings plummeted...due to collateralized debt obligation losses, Visa litigation and provisions for credit losses."

"M&T Bank took a $127 million charge in the fourth quarter as it cut the value of its collateralized debt obligation holdings to $4.4 million."

"M&T Bank also ramped up its loss reserves to cover rising mortgage defaults. M&T Bank set aside $101 million in the fourth quarter for losses. Net charge-offs, loans written off as not being repaid, were $53 million in the quarter."

"'While it is likely that weakness in this sector will continue for some time, we believe that our exposure to residential real estate has been appropriately provided for,' Rene F. Jones, M&T Bank's chief financial officer, said in a statement."

"Friedman Billings Ramsey Group Inc.'s mortgage lending arm, First NLC Financial Services LLC, will file for bankruptcy protection and plans to liquidate because demand among investors for home loans has vanished, the investment bank said Monday."

"First NLC Financial Services LLC, which FBR bought in February 2005 for $100.8 million, plans to file for Chapter 11 bankruptcy protection."

"FNLC's business model was to issue 'subprime' mortgages, or home loans to people with spotty credit histories, and sell the loans to banks and institutional investors."

From Bloomberg. "UBS AG, Europe's biggest bank by assets, is offering to sell notes at yield premiums seven times higher than on securities issued in May, at the beginning of the subprime mortgage market collapse."

"Investors are charging the most in at least nine years to lend to banks and financial companies because of concern that writedowns related to subprime mortgage losses will crimp profits through 2008, Merrill Lynch & Co. indexes show."

The LA Times. "The no-worries lending that inflated the housing bubble is resulting in a flood of soured option-ARM loans. Numbers from industry trackers suggest that these borrowers...are starting to create a second tide of defaults for lenders swamped by the meltdown in sub-prime loans made to people with bad credit or overstretched finances."

"'This is not a sub-prime crisis. This is a stated income crisis,' said Robert Simpson, CEO of Investors Mortgage Asset Recovery Co. in Irvine, which works with lenders, insurers and investors to recover losses related to mortgage fraud."

"The more recent loans appear to be faring the worst, reaffirming the conclusion that lending standards had become overly lax throughout the mortgage industry in the middle of this decade, as competition for fewer good loans intensified amid skyrocketing home prices."

"'It is astonishing how fast the credit deterioration has occurred,' said Paul Miller, an analyst with Friedman, Billings, Ramsey & Co. who follows the savings and loans that specialize in these mortgages. 'It took me and everybody else by surprise.'"

"In California, the 60-day delinquency figure for securitized 2005 option ARMs was 9.5%, compared with only 2.1% of the option ARMs from 2003."

"The Mortgage Asset Research Institute, which investigates lending fraud, said one of its customers checked 100 stated-income loans against tax documents and found that nine in 10 of them overstated income by at least 5%."

"'More disturbingly, almost 60% of the stated amounts were exaggerated by more than 50%,' the institute reported, saying the mortgages clearly deserve their 'liar's loan' handle."

"'They were extremely popular in 2004, 2005 and 2006, and some people were telling borrowers and investors they were safe,' said Steven Krystofiak, president of the Mortgage Brokers Assn. for Responsible Lending, who has testified to the Federal Reserve about high-risk loans."

"Authorities in New York and Connecticut are investigating whether Wall Street banks hid crucial information about high-risk loans bundled into securities that were sold to investors, Connecticut's Attorney General said Saturday."

"The investigations, first reported Saturday by The New York Times, center around 'no-doc' or 'exception' loans, that did not even meet subprime standards, Attorney General Richard Blumenthal said."

"'The loans were made to people who did not have any documents to verify their income or other verification for key requirements normally applied to mortgage borrowers,' he said. 'Many of the lenders made large amounts of loans, so that the exception swallowed the rule, or became the rule.'"

"The loans were sold by subprime lenders to Wall Street firms that bundled them with other, less risky, loans into securities."

"Investigators want to find out whether the banks properly disclosed the high risk of default on those loans when selling those securities to investors in Connecticut and elsewhere, Mr. Blumenthal said."

"'The investment banks may have used very broad, boilerplate disclaimer language that effectively failed to disclose fully and fairly all the information,' he said."

"Blumenthal declined to say which firms were under investigation, but said his office had issued over 30 subpoenas."

"'These practices involving trillions of dollars in securities sold to ordinary investors go to the core of our financial system's integrity and efficiency,' Blumenthal said. 'We regard this investigation as a priority.'"

"As presidential candidates and government policymakers rush to offer prescriptions for the deteriorating U.S. economy, some are beginning to worry about a disturbing possibility: This may not be your traditional downturn."

"And the tools that helped restore prosperity in the past may prove less effective this time around."

"In the current downturn, something more unsettling than a traditional swing in the business cycle appears to be at work: The United States has become increasingly prone to financial bubbles -- huge, seemingly irreversible rises in the value of one sort of asset or another, followed by sudden and largely unforeseen plunges."

"After tentatively suggesting in 1996 that stock prices were exhibiting 'irrational exuberance,' former Federal Reserve Chairman Alan Greenspan opposed any effort to tamp down the market, saying that productivity was growing so rapidly that many of the old reasons for concern no longer applied."

"But Greenspan's theory has become increasingly hard to maintain in the wake of what has happened in housing."

"'We are more prone to bubbles than we used to be,' said John H. Makin, a former senior Treasury official with several Republican administrations."

"'If I were the Fed, I'd think twice about continuing to say we can't identify bubbles,' said Makin. Given the threat now posed by sagging house prices, the sub-prime mess and a more general financial constriction, 'we'd better work harder learning how to identify bubbles and preempt them.'"

The New York Times. "What do banks call it when a troubled borrower abandons her home, sending them the keys? 'Jingle mail.'"

"And what do they call it when an irate borrower abandons his home, yanking electrical outlets from walls, leaving faucets running and otherwise trashing it on the way out? 'Taking the inside of the house with you.'"

"There’s nothing like black humor to define — however sadly and starkly — the blows that keep on coming in this mortgage debacle. But make no mistake, lenders are only beginning to learn how to manage the onslaught of jingle mail and houses turned inside out."

"For example, while it is widely known that a wave of subprime adjustable-rate mortgages, or A.R.M.’s, will reset this summer...an even more troublesome mess involving pay-option adjustable-rate loans lies well beyond that."

"Only when the loan balloons to 15 percent larger than its original size, a nifty development that results from a multisyllabic quagmire known as 'negative amortization,' do lenders demand that borrowers pay down principal. In many cases, this will cause borrowers’ monthly payments to double, according to analysts."

"When do analysts say borrowers will have to start coughing up this extra cash? In 2009, or later."

"'As difficult as the rescue prospects are for subprime borrowers, they are even worse for most pay-option A.R.M. borrowers,' said Michael D. Calhoun, president of a consumer advocacy group. 'Three-quarters of pay-option borrowers are making the minimum payment based on 2 to 3 percent interest typically. The payment shock is so huge that a refinance is virtually impossible.'"

"It is possible to get a feel for what is happening on the ground from a new survey of 2,400 real estate agentss. The survey taps into the outlook of people who see troubled borrowers firsthand, when they try to sell their homes before foreclosure occurs."

"Agents participating in the survey confirmed what many borrowers say: that loan servicers are downright unresponsive. Thomas Popick, principal at the designer of the survey, said its findings show that loan servicers are averse to short sales, even though they may be the best solution for many borrowers, lenders and the overall real estate market."

"'In many cases, loan modifications — no matter how generous the terms — only delay foreclosures on properties where the mortgage balance far exceeds the current property value,' he said. Homeowners who try instead to sell 'know they cannot afford the property and are trying to do the responsible thing — sell the property to someone else who can afford it.'"

"'The attitude of the folks handling these situations with homeowners creates an adversarial relationship and makes the homeowners less able to understand and work through the situation,' one survey respondent said. 'Most foreclosure properties when listed back on the market with the corporate seller look like they have been through a war — and they often have.'"

The Sun Herald. "Beginning today, the National Association of Realtors(R) is reaching out to consumers with the facts about homeownership and the value of real estate as a long-term investment."

"Over the past 30 years, the median price of existing homes has increased an average of more than 6 percent every year, and home values nearly double every 10 years, according to historical data from NAR's existing-home sales series."

"'Nobody buys a home in the national real estate market,' said NAR President Dick Gaylord, a broker in Long Beach, Calif. 'All real estate markets are local, and buyers and sellers who are thinking about making a move should consult with a Realtor(R) in their local market to learn about conditions specific to the area. It's also advisable to look beyond the immediate horizon.'"