Bloomberg reports on home loans. "Defaults on adjustable-rate mortgages made this year to the riskiest borrowers and packaged into bonds surged 25% in October to the highest level for new loans in five years, Friedman Billings Ramsey Group Inc. said."

"Defaults on this year's sub-prime loans in the $2-trillion asset-backed securities market were 30% higher in October than the 2000-to-2006 average for loans of the same age, the firm said."

"Subprime loans from 2006 aren't just performing badly. The loans, in particular those used to back mortgage bonds, could prove to be one of the worst-performing groups yet, according to UBS."

"'I guess we are a bit surprised at how fast this has unraveled,' said Tom Zimmerman, head of ABS research for UBS. While it's 'not a secret that subprime collateral has performed pretty disastrously so far,' he said, 'I must say we were a bit surprised by the magnitude with which' the loans 'deteriorated this year.'"

"There are a few contributing factors that explain why 2006 subprime loans are performing worse than those from earlier years, Liu said. One factor is what's called risk layering, for example, giving interest-only loans to borrowers who are not showing full documentation of their income."

"'The biggest picture is the risk layering is getting worse,' Liu said. 'That is a problem of underwriting quality.' The rate of subprime loan delinquencies of 60 days or more has climbed to about 8 percent, up from about 4.5 percent a year ago."

From Ken Harney. "If the IRS wants to spot large numbers of people who are stiffing the tax collectors, it might want to consider auditing a fast-growing segment of the home-mortgage market."

"Geosegment Systems asked a representative national sample of 2,140 mortgage brokers active in the limited documentation field and came up with some eye-opening answers. While 63 percent of brokers said they knew their self-employed clients had 'unreported income' that they wanted to keep off the record, 71 percent said their borrowers' applications were dependent on additional income 'from a household member with poor credit.'"

"Forty-five percent of the brokers in the study said a 'significant' reason for their clients to avoid full documentation is that they are 'self-employed' but have not filed tax returns. Forty-three percent said their clients 'can't qualify under standard [debt-to-income] ratios.'"

"1 out of 12 said they knew that their low-doc stated-income borrowers were unemployed. Unemployed? To Tom Popik, author of the study, responses like these suggest 'there are significant risk factors' for lenders."