More Misery for Housing

"Although loose underwriting standards were a major factor precipitating the significant increase in delinquencies in the residential mortgage-backed securities (RMBS) sector, ongoing declines in (home price appreciation) trends and the contraction of capital to the mortgage sector may continue to exacerbate sector performance in the near term," said Sharon McGarvey, a structured finance research analyst at DBRS, in the report.

The ABX indices, which track the value of subprime mortgage loans packaged into mortgage-backed securities, are mostly at 52-week lows, according to data from Markit, a provider of credit-derivative financing information.

Hedge funds have profited on this demise this year by effectively shorting the bonds using credit default swaps that track different versions of the index. The riskiest piece of the index, the ABX-HE-BBB-, which tracks the lowest tranches of subprime loans issued in the second half of 2006, fell to a new low of 27.61 on Monday, down from the high of 102.19 over a year ago. It was losing another 4% to 26.50 Tuesday.

All this housing carnage continues to attract the attention of the federal government.

On Tuesday, Treasury Secretary Henry Paulson called "for an aggressive response to deal with an unfolding housing crisis that he said presents a significant risk to the economy," according to the Associated Press.

"Let me be clear, despite strong economic fundamentals, the housing decline is still unfolding and I view it as the most significant current risk to our economy," Paulson said in a speech delivered at Georgetown University's law school, according to the AP. "The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth."