Several readers suggested the topic of foreclosures. "We know foreclosures are on the rise, but how many will it take before lenders say 6.48% is not enough return to cover the risk we’re taking? As a personal investor, I wouldn’t loan anyone money to a home right now unless I was getting at least 10%. Nothing against the borrower, it’s just the market."

"When/If the institution loan-pool buyers come to the same conclusion, the IR curve will steepen drastically and things will get even uglier."

Another said, "Lenders aren’t generally 'afraid' of foreclosures in a rising market. They can foreclose the property, take it back if nobody wants it, then often times resell it for a profit. They aren’t afraid of foreclosures if the buyer put 20% down because there is a substantial equity cushion. Lenders are only afraid of foreclosures on loans made at a market top with the market headed south or if there is no equity cushion for them."

"Those are the only scenarios where lenders face any meaningful risk. Even then, if the lender is adequately capitalized, they can simply hold the property through the downturn, and sell on the next upswing."

"The structure of the MBSs is interesting in this respect. Most of the mortgages have been structured so there is an 80% first (with equity cushion) and a 20% second. It will take a market decline of more than 20% to jeopardize the first trust paper."

And another added, "One of my big worries is knowing who holds all of this paper. I suspect lots has been sucked up into pension /annuity plans, etc. Anyone have good info on that?"

A reply, "Banks don’t hold the property for years, it’s not their policy to hold vacant properties for years. Banks and savings & loans sell as quick as possible for the market value, or whatever they can get."

And another, "The first mortgage holder will slide from 80% to 100% very quickly. accrued interest, costs of foreclosure close the gap quickly. The second mortgage is vaporware, always has been. Then the first mortgage holder has to sell into a sagging market, a 15-20% discount is a must. and no, the lenders will not hold onto the real estate, they have to capitalize that."

And lastly, "The 2nd mortgage will get eaten up not just by the equity slide, but by missed payments, property taxes, insurance, legal fees, and foreclosure fees. So the 20% equity cushion there is not really 20%. It will not take long to eat into the first mortgage."

The Greeley Tribune in Colorado. "Last fall, Weld County was coming off its worst foreclosure year ever. It's getting worse, and those in the industry expect the number of foreclosures to continue to climb. 'We haven't seen anything this ugly in easily 15 years in the sheer anemic nature of this market,' said Matt Revitte, a broker wwho specializes in foreclosures."

"As of this week, there were 1,086 foreclosures in Weld County, a 42 percent jump from the same time last year. In all, 2005 registered 1,500 foreclosures. There is one foreclosure for every 71 residences in Weld. Adams County, with 2,450 foreclosures as of June 30, with a foreclosure for every 50 homes. Arapahoe County tops the heap in volume with 2,570 foreclosures as of Thursday, but it comes out to one foreclosure per 77 residences."

"Revitte said the Weld market is in a major correction at present. There's an oversupply on the market. It also doesn't help that the foreclosed homes are competing with homes that are on the regular market. Northern Colorado economist John Green added that such competition may keep sellers in limbo longer, making them walk way from loans they can't service. 'It becomes a self-fulfilling prophecy.'"

"Revitte agreed, adding, 'This could be a house of cards that continues to implode.'"