Is it subprime mortgages or mortgage-backed securities

The mortgage backed securities r packages of loans, with varying rates of interest. For example, there r ''A'' packages, with full documentation to ''C'' packages with sub-prime, alt-A, etc., more risky but with a greater reward. The mortgage market is in the trillions, & the buying & selling of these mortgages is what keeps cash flowing through the system. If one part of that gets clogged up, the market becomes tighter, that is why we have a liquidity crisis now. Most people r paying their mortgage, in some parts of the country it is 99.9%, in other, overheated areas, it is 90%. This disparity is what prevents the smooth buying & selling of these mortgages. The problem is that the percentage of defaulted mortgage obligations, while small, r coming into a system that is not designed to handle even that number of defaults, & it is causing banks & securities dealers to experience a liquidity crisis. If no one wants to buy mortgages, u do not have fresh capital to make more.

It is both. Not sure where you got your foreclosure rate number, but the current number is much higher. I will look for a link and post it in a moment.

Still we would have been OK, but for the bogus derivative investments created through mortgage backed securities that increase the effect of the defaults. In effect, subprime loans were packaged and transformed into AAA bonds.

People are overreacting. They must be assuming that foreclosures will skyrocket. GNMA funds are probably good investments. Years ago I invested in some GNMA securities. Some were around $ 30,000 originally, but now they have paid down the principal and are now down to about $ 600 on an original principal balance of $30,000. I got them when the interest was 9% and cannot understand why 100% of the principal has not been paid off through refinancing at a lower rate.