Investors!

[ultracapper]

suffolkgirl and wiphon obviously understand this better than the other posters in this thread, but still made a couple mistakes. the appraised value of homes, at the present, isn't the problem. it's the financial markets ANTICIPATING that they will be problems in the coming months. the actual problem, at this very moment, is that there is no money to lend due to the fact investors in mortgage backed securities have divested to secure their funds in ANTICIPATION of future foreclosures. the foreclosure rates haven't increased as we sit here, but investors are anticipating that they will. it is very much due to the negative amortization loans that wiphon mentioned. particularly countrywide has a huge chunk of them coming up to key adjustment periods. these loans were written with pre-payment penalties, so the borrower was locked in to the loan, with no escape, until this key time. underlying lenders and funders are very concerned with the potential of home values being unable to support the new amounts needed to re-finance, and also very concerned that the borrowers themselves have not done the necessary credit cleanup or income improvements to qualify for better paper.

the disaster in the home market hasn't actually occurred, it is being anticipated, which could become a self-fulfilling prophecy. fortunately, the fed has done a remarkable job in keeping their cool and putting in just enough money, and not touching consumer interest rates. there is no good in making money cheaper if there is no money to lend in the first place.