While we're sorting out the big question about the subprime debacle, how to preserve the good (hard-working, bill-paying people once barred from the American dream becoming homeowners) without repeating the bad (fraud, reckless lending and fast-talking salesmen peddling mortgages to folks who simply can't afford them), there's an issue that can't wait: a tidal wave of foreclosures.
     Interest rates on about two million once-popular, subprime mortgages known as 2/28 or 3/27 (because the rate for the first two or three years is lower) are poised to jump in the next year. Many will rise to a range of 9.5% to 11% from 7% or 8%. That would boost a typical subprime borrower's payment by roughly $350 a month. For many of those borrowers, that's the difference between affordable and not.
     There's good reason to presume that someone who stops paying the mortgage will lose the house. If that rule is broken, lenders and the investors to whom they sell mortgages will grow reluctant to lend. Even in good times, though, self-interested lenders often decide they're better off renegotiating a deal with a borrower than seizing and selling the borrower's home. Foreclosure costs a lender as much as 40% or 50% of the unpaid balance.
     And these aren't good times.

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Living Out the American Dream One Mortgage Payment at a Time
By Kate Flatley Lavoie
From The Wall Street Journal Online

     If you look carefully at the staircase banister of the Elephant Hotel in Somers, N.Y., you will notice a small cameo embedded there. Legend has it that it was placed on the handrail by the building's 19th-century owner, Hachaliah Bailey, of Barnum and Bailey fame, as a subtle indication to all visitors that the building was paid for.
     Paying off a mortgage was no small feat then, especially if you weren't a wealthy farmer and cattle merchant like Mr. Bailey. In fact, the word "mortgage" comes from French common law. Meaning "dead pledge," it was a fixed and absolute debt and put home ownership out of reach for most people. Though it was easier to accomplish here in the U.S. than in Europe -- Americans had homesteading programs and did not have to contend with noble landowners loath to relinquish their holdings -- only 46.5% of Americans owned their homes in 1900, and that number declined a bit during the Depression. Today, according to the Census Bureau, about 66% of us could put a cameo on our handrail.

never know what the bill will say when I open it.

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Which Markets Move Mortgage Rates? A Primer
By Terri Cullen
From The Wall Street Journal Online

     In Home School, Wall Street Journal personal finance columnist Terri Cullen will try to answer your questions about the housing slowdown. If you have a question about shopping for mortgages, buying or selling a home (or both!), what’s going on in the real-estate market or any other topic relating to housing, email her at fiscallyfit@wsj.com.
     Question: My fiancée and I are in the process of buying a new home. Does a drop in the Federal-funds rate influence the fixed-rate mortgage? Thanks for your help and guidance.
- Victor Prosper
     Answer: Victor, mortgage rates actually follow the bond market, not the Fed-funds rate. The interest rate on a 30-year fixed-rate mortgage tracks the yield on the 10-year Treasury note (at Tuesday’s close 4.383%.). Lenders typically set their base mortgage rate around two percentage points higher than the 10-year bond yield. Rates on adjustable-rate mortgages are tied to yields on two-, three- and five-year Treasurys. These short-term loans are more sensitive to Fed rate movements, and those with the shortest maturities see the greatest impact when short-term rates rise and fall.

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     And you thought the credit crisis was over?
     Like most investors, I'm delighted when markets rise -- even when I can't figure out why. Until last week, that's how I was feeling. Since the market bottomed on Aug. 16, in the midst of a credit meltdown and market turmoil, it soared to new highs. It was as if Federal Reserve Chairman Ben Bernanke had pulled out a magic wand, waved it to produce a half-point rate cut, and poof! The credit crisis was gone.
     Then came Friday's 366.94-point decline in the Dow Jones Industrial Average, which ended the week down over 4%.
     Meanwhile, mortgage defaults -- the problem at the heart of the credit crisis -- have continued to soar. Thornburg Mortgage, the mortgage REIT whose fortunes I've followed closely in this column, reported a $1 billion loss and suspended its dividend, sending its stock tumbling.

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     Until several years ago, Christopher Bittle was frivolous with his finances, frequently making late payments on credit cards and cable bills. But his priorities changed when his third child arrived last year and his family was squeezed into a two-bedroom apartment in Greensboro, N.C.
     The 36-year-old aircraft-maintenance technician knew it was time to clean up his credit and buy a house. But as a housing and credit crisis roils the industry, lenders are steering clear of buyers like Mr. Bittle.
     So, to qualify for a loan, he turned to an experimental program run by K. Hovnanian American Mortgage, a Hovnanian Enterprises Inc.

subsidiary that partners with an outside firm to help consumers rehab their credit for a traditional loan.
     Mr. Bittle paid his bills on time, settled with collection agencies and learned about financial topics, including budgeting and managing credit-card debt. It took several months, but his credit improved enough to allow him to qualify for a 30-year-fixed loan for a 1,680-square-foot home with three bedrooms and sleek black appliances.
     Hovnanian, the nation's sixth-largest builder, is expanding the free program nationwide. And it isn't the only builder nursing promising buyers to the dotted line: D.R. Horton Inc., the nation's largest builder, has a similar program that puts "credit challenged home buyers" through intensive coaching that includes assistance with debt reduction and responsible spending, according to the company's Web site.
     To be sure, buyers can duplicate these services on their own: There are complimentary credit reports at www.annualcreditreport.com, and consumers can even challenge errors online. Plus, plenty of independent groups will help. Some critics say the companies take advantage of consumers' woes to boost sales.

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     Chris Bergin and his brother, Ben, were jamming along to "Message in a Bottle" on the videogame Guitar Hero 2 during a storm in June when a bright light flashed and a thunderclap shook their house in Wilton, Conn.
     The lightning strike nearby triggered a power surge that snaked through the house's electrical system to Mr. Bergin's PlayStation 2 then traveled through the wiring to the plastic guitar controller pressed up against his stomach.
     "I just remember falling to the ground and looking at my brother 'cause he was on the ground, too," says the 15-year-old Mr. Bergin. The two brothers weren't hurt, but their PlayStation was fried, along with their laptop computer, television set, cable and phone wiring and ceiling fan.
     Lightning safety experts, endorsing common sense, have long advised that indoors is the safest place to be during an electrical storm. The National Weather Service recently adopted the slogan, "When thunder roars, go indoors."

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     Some home renovation jobs are a lot harder than they look. Here are five standard DIY projects that inexperienced renovators routinely mess up, and some tips from the pros.
     The Job:
     LAYING BRICK PATHS
     The Pitfalls:
     If the foundation under your pavers isn't hard and level, within six months and after enough rain, your path may look more like an old, crooked, cobble-stone street.
     The Pros Say:
     Unless you're going for the old, crooked, cobble-stone street look, stick with spaced out, individual stones. They are a little less formal, "so you can get away with not having the foundation as straight and solid," says Brad Little, president of Case Handyman and Remodeling Services in Charlotte, N.C.

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