Federal regulators are warning the world to get ready for the next wave of problems in the banking world.

Up to now banks have been struggling to deal with the piles of delinquent debt from earlier subprime lending to homeowners and the dozens of federal, state, and lender originated programs being proposed are all designed to address this crisis.

That situation is only getting worse according to information released last week by the Mortgage Bankers Association (MBA) which reported that 6.35 percent of all one-to-four family home loans outstanding at the end of the fourth quarter were delinquent, an increase of 53 basis points from the previous quarter and 151 basis points from the first quarter of 2007. These figures do not include loans that have already entered the foreclosure process. Once again this quarter, the rate of foreclosure starts and the percent of loans in the process of foreclosure are the highest recorded since 1979.

But, while lenders and investors have been working to raise the necessary capital reserves to withstand looming write-offs and losses from this consumer-based mess, a new group of bank customers have been watching their own situation get worse.

Home builders, condominium developers, and land speculators are facing growing problems making payments on their loans and, with home sales finishing up a disappointing spring sales season, these construction related loans look even shakier. Both borrowers and lenders are being hit for a double whammy as sale prices of homes and condos and the value of raw land continue to fall. This erosion of loan collateral makes it difficult if not impossible to get out of loans in one piece even where there are buyers available.

According to an article in the Wall Street Journal, those banks which are heavily tied to home construction loans have begun to dump them, many at steep discounts, a precursor to billions of dollars in new losses.

The Journal cites IndyMac Bancorp Inc as among those banks with large portfolios of troubled loans tied to land and housing. IndyMac is reportedly trying to unload $540 million in loans made to finance land purchases and home construction projects. The newspaper says that winning bids on some of the loan packages were a "grab bag" of collateral types including partially built subdivisions, condo buildings, and large parcels of raw land, averaged $0.60 on the dollar but some brought in only about $0.20 cents.

KeyBank has an even larger problem - $935 million in land and construction loans while Wachovia Corp is seeking bids on a $350 million portfolio.

In testimony before the Senate Banking Committee on Thursday several bank regulators testified on the seriousness of the situation. Federal Deposit Insurance Corporation Chairman Sheila Bair pointed to banks that are not diversified or with high exposures to residential construction and development as being of particular concern. Also smaller banks are not in a good position to offset losses and even larger banks in states like Nevada and Arizona that have been hard hit by the housing crisis are already back on their heels and probably not ready to confront another round of write-offs.

The Journal quoted an analytic report sent on Thursday by housing research firm Zelman & Associates to its clients that projected that, over the next five years, U.S. banks could "charge off" as bad debt 10 to 26 percent of their loans tied to residential construction and land. In dollars this would amount to $65 billion to $165 billion.

In Thursday's Senate committee hearing Office of Thrift Supervision Director John Reich testified that the number of savings-and-loan associations at "a heightened risk of failure" jumped from 12 at the end of March to 17 today. Four banks have already failed this year, more than in the prior three years combined.

Regulators said they have increased scrutiny of banks with high concentrations of real-estate loans.