Subprime mortgage defaults peaked and will slowly begin to slide during the next two years.

But don't get excited -- option ARMs and ALT-A mortgages are now beginning to rise at a very rapid rate. According to analysts I follow, notably Ivy Zelman, the next tsunami will be larger than the one we just went through.

And the banks are not currently valuing these mortgages as if they will default at this rate.

Be sure to read all 7 reasons the stock market isn't going up any time soon.

Michael Shulman is a contributor to OptionsZone.com.

If you were getting used to the bulls running the show, the bears whispers of "Remember us?" turned much louder today. If you were looking for the day we finally got profit taking after a monster rise in financial stocks, it came. Weak housing data was said to be one of the key issues for the market, but the more than 400,000 weekly jobless claims filed was much worse than expected. Oil didn't skyrocket but it did at least catch a bid today and oil was back up to over $125.00 per barrel late in the day. If you want a big figure, PIMCO's Bill Gross said that total financial writedowns could see $1 Trillion.

Here are today's unofficial closing bell levels:
DJIA 11354.49 (-277.89)
S&P500 1253.12 (-29.07)
NASDAQ 2280.11 (-45.77)
10YR T-NOTE 4.016% (-0.132%)
52-WEEK LOWS
TOP ANALYST UPGRADES
TOP ANALYST DOWNGRADES

Amazon.com, Inc. (NASDAQ: AMZN) saw a mega-surge after the market decided that its above estimate earnings and somewhat conservative guidance was to match the environment rather than to be any red flag. Shares were up a sharp in today's final minutes.

Joining the likes of other larger financial institutions and banks, mortgage giant Washington Mutual Inc. (NYSE: WM) joined the billion-dollar loss club. The company's quarterly results reflected a $3.33 billion loss, bringing its total loss reserve to $8 billion due to bad loans in its portfolio.

Similar to what kindergarteners face, the mortgage industry's "monkey see, monkey do" attitude just keeps the billion-dollar losses coming quarter after quarter. WaMu did say that it would be trimming up to $1 billion in costs by the end of next year. Ah, how nice! If you're a WaMu shareholder, does that statement give you any comfort? Probably not.

To go from an $830 million profit in 2007 to a $3.3 billion loss in 2008 is unspeakable, but it's almost the norm these days with mortgage-involved entities floating at the top of the fishbowl. Even though WaMu reflected a capital raise in April in its loss, the company still lost $3.34 per share even at that. Writeoffs totaled $2.17 billion and the company changed the time period from three years down to a year in which to evaluate defaults in its prime mortgage portfolio. As of this morning, WM shares are down over 20% from before Tuesday's report, and down over 57% for this year as well.

Oh man, the news coming from the Fed seems to get worse and worse. On a day when financials like Citigroup (NYSE: C) continue to weaken -- Merrill Lynch (NYSE: MER) reduced Citi's outlook -- Fed head Ben Bernanke sends the market indication that we are not yet near the end of the mortgage debacle, and he is looking for a "vigorous response" to address it.

According to an AP article, Bernanke, in an address to a banking group, stated that the mortgage crisis was not done, and that more relief would be necessary for homeowners who simply are unable to balance their books. This isn't what anyone on Wall Street wanted to hear, and certainly not what an individual investor like myself was looking for, either; I have ample financial exposure in the form of MFA Mortgage (NYSE: MFA) and Newcastle Investment Corp. (NYSE: NCT).

Further, Bernanke made a suggestion that bankers would obviously find tough to implement -- he said that a reduction in loan principal might be an appropriate way to relieve a struggling owner of real estate. Hmmm, that might not go over too well, especially with the crowd that isn't happy with government intervention -- now Bernanke is calling for lenders to be more lenient? But, what should one expect? This is the Fed, after all, and it's the institution's job to promote some economic homeostasis in times of need. Bernanke believes more foreclosures are coming, and he wants to get ideas out there that will save as much home equity as possible. He brings up a good point, implying that lenders will benefit from loan-principal reductions simply because the rate of foreclosures would, in theory, decline as a result of such a tactic.

We have been talking a lot about the weak housing market lately, and this morning we get another sign of just how bad things are with luxury home builder Toll Brothers (NYSE: TOL) warning it will see a huge decrease in its quarterly revenues.

The Pennsylvania-based home builder has not yet released official numbers, but will be hosting a quarterly outlook conference call today at 2:00 PM EDT about the fiscal third quarter ended July 31.

The company, which reports earnings August 22, expects revenue to fall 21 percent to about $1.21 billion based on preliminary estimates. Toll also said it wasn't comfortable giving earnings guidance.

This can't be a good sign.

Not only is the company preparing investors for a weak fiscal third quarter, it also is setting the stage for more weakness in future quarters. In this morning's announcement, Chief Executive Robert Toll said that uncertainties in the mortgage market right now could continue to lower the pace of home sales moving forward.

Surprisingly, the stock is trading higher in pre-market trading, but I would not be surprised to see this reverse once the market opens up and Wall Street's big boys get into the action.

Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.