Readers suggested a topic around the recent changes in the secondary mortgage market. "Wall Street and investors. They are in control of this whole mess and usually have the final say if a loan can be modified or not. Right now, investors refuse to modify these loans because they stand to lose more by working with a borrower or agreeing to some type of short sale."

"This situation is complicated by the fact that these Mortgage Back Security (MBS) holders (INVESTORS) have insured against defaults, and the insurance payout on a default is a better result for the investor than accepting reduced returns. So the investor may actually be better off with a default as opposed to a mod."

"In this circumstance, the investor can take the position that a mod goes against their best interests and threaten suit against the servicer if mods are undertaken. Investors are screaming bloody murder about potential mods that will wreck their insurance payout."

"Hedge funds by nature do not need to disclose their losses or net asset value. There are HUGE losses that have not been disclosed, including cities, counties, pension funds, and bank money market funds that are NOT FDIC insured."

One replied, "Can the loan servicer be successfully sued for an action that limits the losses to its investment pool based on the conditions of a subsequent deal made by a bondholder?"

"Imagine I buy a property from you, then take out insurance against an unexpected defect in the property. When a defect is found, you decided to fix it with a less comprehensive fix than the insurance company could have been made to pay for to avoid being sued. Can I demand that you don’t fix it? Legal mess."

One pointed out, "In a lot of cases it is also in the owners best interest to default rather than modify, from the purely financial perspective."

Another said, "But, sometimes Insurance Companies will not pay off if fraud was involved in the loan package, (which I think includes loan application fraud ). I would think that the Insurance Companies are going to be checking these loan packages to see if they have to pay or not."

One added, "RE: loan application fraud. You can throw appraisal fraud into the bucket also."

"Given the open, rampant and notorious nature of both fraud and corruption in the lending biz for the last 5 years any pay-out by an insurance company could take years."

A homeowner said, "Respectfully, I am a homeowner, and I don’t feel as I am 'held hostage,' primarily because I am in a housepayment I can easily afford."

"To the extend that some people took a risk on a loan to get a bigger house, those people made their own bed. People take risks all the time. If you want to take a risk whether it’s skydiving or a neg am loan, then hey, it’s a free country right? But lets not pretend like the people for whom the risk caught up to them, and they may be getting forclosed on or whatever didn’t get their all by themselves."

"Sure, investors may have provided the airplane and parachute, but those homeowners willingly signed up in droves, strapped it on and jumped right outta that plane."

"Just leave them all alone to work it out amongst themselves. For the rest of us, there is going to be a good deal on real estate for the next 10 or more years."

The New York Times. "The props holding up the values of risky mortgage securities finally started to give way last week. And that means the $30 billion in losses and write-downs taken by big brokerage firms in the third quarter are not likely to be the last."

"Even as developments in the credit markets went from bad to worse this year, investors for the most part have remained upbeat about the values of the mortgage securities they held. One reason that they could keep their heads in the sand was that these complex securities are hard to value in good times, impossible during periods of stress."

"After last week, however, it was no longer plausible to deny that mortgage loans, and the complex securities derived from them, had crashed — and caused a lot of damage in the process. First to face the music was Merrill Lynch, which stunned investors Wednesday with an $8.4 billion write-down, $7.9 billion of which was for mortgage-related assets."

"The write-down was $3.4 billion more than it had warned investors about just three weeks before. Merrill’s decision to write down its holdings as it did gives a clear signal to other banks and brokerage firms that valuing similar assets at lofty levels is no longer acceptable or credible."

"Then, on Friday, Moody’s Investors Service began downgrading C.D.O.’s. Despite the subprime turmoil, some of these securities had continued to carry high ratings, until Friday. Moody’s cut or placed on review for possible downgrade securities from dozens of C.D.O.’s, some rated as high as AAA. The C.D.O.’s that may be subject to a downgrade hold subprime mortgage loans worth $33 billion, and there are probably more to come."

"'We’ll definitely see a lot more write-downs,' said Josh Rosner, an expert on asset-backed securities. 'I think that the exposures that we are seeing and the announcement out of Merrill are the leading edge, not the end.'"

"One reason that Mr. Rosner expects more losses from banks and brokerage firms relates to the calendar. Intense auditor scrutiny comes once a year, and that is the period we are in now — fiscal years at many big brokerage firms, Morgan Stanley, Lehman Brothers and Bear Stearns, for example, end in November."

"'When it comes time for the auditors to attest, they are going to be very conservative,' Mr. Rosner said. That means write-downs will have to reflect the reality in the market, not some rosy scenario."

The Orange County Register. "As loan defaults and foreclosures rise, politicians and consumer groups have directed many of their attacks toward mortgage brokers. They say some brokers steered consumers into loans they couldn't afford to earn a bigger commission."

"Brokers, meanwhile, are firing back and say an entire industry is being blamed for actions of a few bad apples. And banks, not brokers, bear the ultimate responsibility for every single home loan, brokers say."

"Brent King, senior VP in the mortgage division of Wachovia, said while his firm works with and values brokers, loans touched by brokers historically go into default more often than retail loans. The reason may be fraud, he said."

"'The more hands that touch the file, the greater opportunity for fraud,' King said."

"In Orange County in July, 2.47 percent of outstanding loans made by brokers were delinquent or in foreclosure vs. 1.21 percent of retail loans, according to First American LoanPerformance, which tracks about 80 percent of the market. Statewide the difference is greater with 5.88 percent of broker loans gone sour vs. 2.2 percent of retail loans."

"The differences are small but telling. In Orange County, broker loans account for just 35 percent of outstanding loans but in July made up about twice as many loans in foreclosure."

"'We only give out the products that we have been given by lenders,' said John Marcell, a broker in Upland and former president of the California Association of Mortgage Brokers. 'The lenders create the products and say here are the products you can sell. If we didn't have the products to sell, we wouldn't have sold them.'"

"Raphael Bostic, a professor of real estate and associate director with USC's Lusk Center for Real Estate, said banks didn't carefully scrutinize brokers or their loans when most mortgages could be profitably sold."

"That's all changed amid a housing downturn two years long and still going. Banks are looking for the causes of costly defaults and finding the 'safety of broker loans is qualitatively different,' Bostic said."

"Wachovia's King said the lending industry pendulum now is swinging against brokers, but not entirely. 'I think it will end somewhere in the middle,' he said. 'It's just heading in the other direction right now.'"