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Housing's Roof Collapsing

There are fresh signs the housing market could be headed for total disaster.

Look at the huge quarterly losses reported Tuesday by D.R. Horton (DHI - Get Report), the country's largest homebuilder, and Freddie Mac (FRE), one of the largest purchasers of U.S. home mortgage loans .

Or check out Standard Pacific (SPF - Get Report), a builder heavily leveraged to the California housing market, whose stock has dropped about 40% in five days on no new company news but a plethora of liquidity worries.

Falling housing prices, coupled with high consumer mortgage debt payments, are causing homeowner defaults and delinquencies to increase. This is leading to larger loan losses, which has hit homebuilders, mortgage lenders and large financial institutions like Citigroup (C - Get Report) and Merrill Lynch (MER).

The drop in housing prices is causing most of the pain. A report from real estate information firm Zillow.com released Tuesday shows that U.S. home values fell 6% in the third quarter, the largest decline in the last 10 years (since the firm began tracking the data).

On top of that, nearly 16% of homeowners who bought houses in the past year now have negative equity in their homes, meaning they owe more than what their homes are currently worth, the report says.

On Tuesday, Freddie Mac, the second-largest purchaser of U.S. mortgages, reported a $2 billion loss due to increased reserves for loan losses and impairments of existing loans. Freddie Mac is now facing a problem where it has to put aside money to protect against past loans, rather than put that money to use in new loan purchases.

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