Readers suggested a topic surrounding the changes in the lending industry. "Which of the big lenders are at the most risk of collapse in 2007? HSBC? Countrywide? etc. I suppose I’ll start looking through their 10KSB & 10Q’s for clues."

One said, "1. Countrywide, Option One and Ameriquest go bankrupt. What happens to a mortgage when no one wants it at any price? Fannie Mae attempts to turn in a Long John Silver’s placemat as a financial statement, they get another extension and a stern warning that they will be delisted."

Another said, "Credit will tighten and this means that there will be fewer sources of funding since the MBs holders will begin to demand the appropriate risk premium. Debt is debt and has to be paid back at some point in time. This is why M3 cannot expand indefinitely. Deflation will happen because of credit destruction."

One hears aircraft. "Bernanke says he will drop money from helicopters. Your argument says people won’t pick it up, or banks won’t lend it. I just can’t believe that. A bank that doesn’t lend is out of business."

One is doubtful, "He will continue trying to walk the volatile tightrope between death by fire (inflation / possible run on the dollar) and ice (recession / deflation). Discrete helicopter drops will only be used to the extent judged as necessary to stay on the tightrope. Good luck!"

The Wall Street Journal. "As more homeowners skip out or fall behind on their mortgage payments, some lenders have started tightening their underwriting standards."

"That might not be enough to save them from losses. Mortgage lenders, such as Countrywide Financial Corp., Downey Financial Corp. and FirstFed Financial Corp., try to avoid risky 'subprime' borrowers and have become more cautious about whom they lend to in general. Also, they're setting aside more reserves for potential defaults. But the increasing popularity of second mortgages could end up undermining their efforts."

"New data in a research report from securities firm UBS show a high percentage of borrowers with delinquent, defaulted and foreclosed loans have second mortgages, which they've usually taken out at the same time as their first loans to buy a house. The UBS data suggest these borrowers are so stretched financially by the added debt that they can't make payments on their first loans on time."

"Second mortgages underwritten by the same bank that originated the first loan are termed 'silent seconds' because the loan-to-value ratio lenders report includes only the first mortgage. They can enable a home buyer to borrow more, often to buy a property he or she couldn't otherwise afford."

"These second mortgages, sometimes called piggyback loans, started to take off along with other 'nontraditional' mortgages, such as interest-only mortgages and payment-option ARMs, as housing prices appreciated in recent years and meeting traditional mortgage requirements became more difficult."

"Today, adjustable-rate, interest-only loans constitute the highest percentage of silent seconds. In the 'Alt-A' mortgage market, where borrowers have good credit but don't necessarily fit traditional lending standards, 58 percent of the $24.6 billion in adjustable-rate, interest-only mortgages originated in 2006 have second mortgages."

"The amount borrowed in silent seconds probably is greatly underestimated, says David Liu, a director in the U.S. Securitized Products Strategy Group at UBS. The lack of knowledge among lenders about silent seconds held elsewhere presents a problem as the lenders try to determine how much to set aside for potential losses."

The LA Times. "Ownit Mortgage Solutions Inc. of Agoura Hills, which shut down abruptly early this month, has filed for bankruptcy protection, saying it owes more than $165 million to Merrill Lynch & Co. and other financial firms that bought Ownit loans now in default."

"The filing is a sign of the stresses felt by so-called sub-prime lenders such as Ownit, which make higher-cost loans to borrowers with poor credit or limited incomes. In its filing, Ownit listed its assets as between $1 million and $10 million and said it owed $170 million to its 20 biggest creditors. By far the biggest portion of the debt resulted from soured mortgages."

"Ownit sold its loans on the condition that it would have repurchased them if the borrowers missed payments in the early months."

"Merrill Lynch demanded that Ownit repurchase mortgages totaling $93 million. Several other Wall Street firms are seeking smaller amounts, and Calabasas-based Countrywide Financial Corp. has $11 million in loans it wants Ownit to buy back."

"Merrill Lynch was Ownit's chief backer on Wall Street, having bought a 20% stake in the company for $100 million in September 2005. Merrill also had provided a large credit line to Ownit and purchased two-thirds of its loans to convert into mortgage-backed securities."