MSNBC has this report on exotic loans. "'Joe' is a homeowner who did not want to give his full name for this story because he’s ashamed to admit that he soon won’t be able to afford his monthly mortgage payments. In order to get the $800,000 house he bought early last year in California’s Silicon Valley, Joe got an 'option ARM.' The unpaid interest was tacked onto the principal, creating 'negative amortization.'"

"He initially thought his salary would rise along with his home’s value. But when a lost deal closed the company and 'For Sale' signs popped up, and stayed up, in his neighborhood, a now-unemployed Joe is wondering how he will afford those higher payments when his rates adjust."

"Joe is not an atypical homebuyer in the Bay Area or other now-bursting bubble markets across the country. Nearly half of the homebuyers and thirty percent of people refinancing mortgages in California chose interest-only loans last year."

"Now these cheap mortgages that fueled the real-estate boom are beginning to hurt the homeowners they once helped. Higher interest rates and the end of honeymoon periods for too-good-to-be-true teaser rates are increasingly causing payment shock for borrowers."

"'Nationwide, approximately $400 billion of [home-purchase adjustable-rate mortgages] are scheduled to reset at some point in 2006,' said Frank Nothaft, chief economist with Freddie Mac. 'A significant number of homeowners will face some adjustments.' In fact, the ARMs with scheduled payment increases this year work out to about 5 percent of all single-family debt outstanding in the country now, he said."

The Wall Street Journal. "Looking back at past housing booms, the first sign of the end is when a goodly share of buyers stop making offers and eventually stop looking, seeming to just disappear. In the spring of 1987, during another U.S. housing-market boom that was starting to lose speed, Nora Moran, president of the Greater Boston real estate board, said 'someone blew a whistle that only dogs and buyers heard.'"

"Across America today, it is as if the whistle has again been blown. Why is this happening so suddenly? The market spoiler was in place some two years ago. At that time, we felt that the spectacular price increases could not be justified. The psychology of that time could not continue indefinitely, and indeed it has not."

"Talk is part of what changes the mood and actions of buyers, and the air is now full of talk of a bust. The covers of the New Yorker, the Economist, The Wall Street Journal and virtually every news magazine and newspaper in America has heralded the bursting of the 'housing bubble.'"

"New construction, initiated in response to high home prices, has reached unprecedented levels, and new houses are still hitting the market just as demand is dropping. But the housing construction boom can't go on forever."

"Beyond all these factors there is the simple psychology of expectations that is part of any speculative boom. These expectations can turn suddenly when alert home buyers get the sense that something might be amiss. Americans haven't changed their basic views on housing as a great long-term investment. Not yet, at least. That won't happen unless there is a protracted housing price decline."

"Buyers do not want to pay prices that are significantly higher than a year ago. Buyers are waiting and low-balling. Sellers want to get a price increase of the kind they've observed in the recent past. The result is that fewer agreements are reached, and sales fall."

"As always, the future is uncertain. Many of the underpinnings of the boom are still strong, and the soft-landing scenario so widely promoted by economists and industry leaders is a possibility. But that possibility is not enough to give great comfort to all those who worry today about the housing market."

"Unfortunately, there is significant risk of a very bad period, with slow sales, slim commissions, falling prices, rising default and foreclosures, serious trouble in financial markets, and a possible recession sooner than most of us expected. Deterioration in that intangible housing market psychology is the most uncertain factor in the outlook today. Listen hard and watch out."