More stories on how subprime MBS problems are "trickling down" to everyday borrowers

Most home loans aren't held "on the books" by your local neighborhood bank any more. They're packaged together and sold off to end investors as Mortgage Backed Securities (MBS). That ostensibly spreads the risk of loss on higher risk loans over many investor portfolios, reducing the risk of bank failures and therefore, "credit crunches."

But this also means developments in the capital markets can have a major "trickle down" impact on borrowers. Simply put, if something causes MBS demand from pension funds, hedge funds, mutual funds, and the like to dry up, front-line mortgage lenders and brokers have to react fast. They have to charge higher rates to their borrowers. They also have to tighten standards. And they have to eliminate some of their loan programs entirely.

That's what is happening right now. This Washington Post story covered the topic in more detail today. You can see my comments, as well as a few examples of how your average borrower is being affected by this mess.

Reuters also has a story chronicling the demise of 100% loan-to-value subprime financing at Countrywide Financial, the largest subprime mortgage lender in the U.S. And this New York Times story really goes to town on the mortgage securitization machine, talking about how it's breaking down due to the delinquency surge.