There's good news and bad news about the mortgage market. The good news is that you can get your information from a variety of sources. The bad news? You really need to get your news from a variety of sources.

Conflicting reports Wednesday suggest that mortgage applications are up -- and down.

Deutsche Bank (NYSE: DB) expects almost half of all U.S. homeowners to be underwater -- figuratively, of course -- by 2011.

Declines in home prices and the fact that some of those difficult mortgages just aren't going away put 26% of homeowners in this situation by the end of last March, and it seems the situation is only going to get worse. Unlike the early stages of the credit crisis, which were driven by subprime mortgages, the next iteration will have a greater effect on prime mortgage borrowers, which comprise two-thirds of the loans outstanding.

Are mortgage rates affecting U.S. mortgage applications? The short answer most likely is yes. Mortgage applications tumbled to a 7 month low, with refinancing loans down 30%, according to Reuters. This is clearly not a good sign for the housing market.

Kenneth Rosen from the University of California says that mortgage rates are just one factor causing the drop. He adds that high unemployment, concerns for job security, and problems with buyers being unable to sell their existing homes are also affecting the market.

The short-term drop in mortgage interest rates just before the emergency Fed rate cut in January of .075% and before its 0.5% cut at the regularly scheduled FOMC meeting at the end of January started a mortgage refinance party. But that party ended pretty quickly because mortgage interest rates are back on the raise. So it's not surprising that mortgage applications dropped like a stone by 22.6% to 822.8 last week. That level was last seen on Jan. 4 before the mortgage rate cutting party began in anticipation of the Fed rate cuts.

Many are sitting on the sidelines waiting to see if the Fed will cut another 0.5%, as analysts expect at its next meeting March 20 and 21. Since inflation appears to be heating up, that rate cut may not be a lock. Upward prices on food, energy and health continue to wield considerable inflationary pressures.

Since home sales continue at a snail's pace most new mortgage applications are for refinances, so these applications drop off dramatically as interest rates rise. Borrowing cost for 30-year fixed-rate mortgages were up about 0.37% from the previous week and averaged 6.09%, which was slightly below last year's level of 6.19%. Mortgage rates usually go up as the 10-year U.S. Treasury notes, which hit its highest yield on Tuesday at 3.915% since early January. Fixed 15-year mortgage rates averaged 5.55% up from 5.18% last week. Rates on one-year ARMs were unchanged at 5.72%. Now is definitely not the time to even think about an ARM. If you are taking a loan lock in that fixed rate.

Home foreclosure rose 68% in the past 12 months, but declined 10% in November from the previous month, according to date compiled by RealtyTrac, Reuters reported.

Lenders filed 201,950 foreclosure filings in November, for a foreclosure rate of 1 in 617 households.. October's decline follows 2% gains in October 2007 and September 2007, respectively, according to RealtyTrac, Reuters said. The 201,950 foreclosure filed in November 2007 contrasts with 120,334 filed in November 2006, Realty Trac said, The Associated Press reported.

Economist David H. Wang told BloggingStocks Wednesday that investors should not take away from October's monthly decline that foreclosures are trending downward, or that the housing slump is nearing an end.

"It's always good to see a decline in foreclosures, but keep in mind that this is only one month. The market would need to see declines for 3, 4, 5 months before we can begin to state that foreclosures are heading lower," Wang said. "More than likely, with many more resets ahead, the foreclosure statistic is likely to rise."

You probably aren't surprised to find out that October foreclosure filings surged. We're a long way off from the end of this crisis and it's only going to get worse before it gets better.

CNN Money reports this morning that 53,609 homeowners were forced out of their homes after banks repossessed them, up from 20,768 a year ago. Through October, 308,567 people have lost their homes to foreclosure and the number of new foreclosures filings keeps rising.

In October 224,451 foreclosure filings were reported nationwide, up 94% from October 2006 and up 2% from September, according to RealtyTrac. Many expect the numbers to go even higher in 2008 as ARMs will reset in even greater numbers through 2008. People who thought they could refinance before their reset will find it much harder to do now that credit is tighter and underwriting standards for qualifying for a new mortgage make it much harder to get a loan. Also, many people who bought since 2005 will find their homes are worth less than their mortgage in many areas of the country, as home prices continue to fall.

You have to love academia. With the subprime meltdown in full swing and Americans with ARM and/or pay-option mortgages finding their homes in jeopardy, Tomasz Piskorski of Columbia Business School and Alexei Tchistyi of New York University's Stern School of Business have come out with a 65-page paper full of equations to demonstrate that no, actually these so-called toxic mortgages are the best ones out there.

The authors of the study argue that, in a perfect world, these mortgages are great -- sounds a little bit like what some people say about communism. Pay-option ARMs work great if people behave rationally -- act in the own best interests, behave with self-discipline, and pay more than the minimum whenever possible.

That sounds like most of the subprime borrowers you know? Yeah, that's what I thought. The professors say that, with proper education, these loans could be attractive. According to Piskorski:

"Obviously people are to some extent irrational. But if you want to ban this type of contract, you should really weigh the benefits and the costs. How much could you educate people? Make people understand them. Provide them with software. Make a federal law that requires the lender to reveal what this contract is about."

But most people know shockingly little about finances. According to a Jump$tart survey, "Only 14.2% [of high school students] felt stocks are likely to have higher average returns than savings bonds, savings accounts, and checking accounts over the next 18 years in spite of the fact that there has never been an 18 years period when this was not true."

So educating people about pay-option ARMs seems a little ambitious.

On today's Stop Trading! segment on CNBC, Jim Cramer said Bear Stearns (NYSE: BSC) should be keeping its mouth shut until it is ready to start buying shares. The fact that headlines will be interpreted poorly means that it shouldn't speak until it's behind. Cramer started screaming louder than he's ever been on recent TV that Bernanke and Poole and the Fed is asleep and they are not aware of how bad this situation is out there. He said the Fed should be lowering the rate at the discount window. This is a different kind of market. Of the 14 million mortgages in the last three years, almost seven million were in teaser or ARM or non-traditional mortgages. All of those homes are potentially at risk in his mindset.

It looked to me like CNBC's Erin Burnett looked a little taken aback by this today, and it's hard to blame her. We just needed Vince McMahon and a Smackdown to rival today. This meltdown in subprime still has a long ways to go before all the dust settles. This has already toppled some firms and we won't know where the real bottom is until after the fact. The ugliness isn't just about financial and private equity no longer able to borrow and deal...it's much worse than that. The impact of this looks like it is going to end up being far worse than the derivative implosions in the bond market from 1994 to 1996. The difference is that Joe Q. Public isn't seeing their treasury notes lose as much.

MAJOR PAPERS:

• Higher interest rate are making commercial real estate deal makers think twice about deals, according to the Wall Street Journal's "Heard on the Street," sending shares of companies like Archstone-Smith Trust (NYSE: ASN) down from $64 to $60.75 a share.
• The Financial Times reported that U.S. senators have proposed new laws that would impose higher taxes on private equity firms that list their shares on stock exchanges, a move that could be a blow to private-equity firm Blackstone Group, which is seeking to list its shares.
• The U.S. and U.K. are working on a treaty that would allow Britain to buy American weapons without obtaining export licenses, the Financial Times reported; any deal on the issue could face opposition in the U.S. Congress, although the British believe eliminating the need for the licenses would expedite the arms purchasing process.

OTHER PAPERS:

• Turnaround candidate Eastman Kodak Company (NYSE: EK) may be ready to shine, BusinessWeek's "Inside Wall Street" column reported, and now may be a good time to evaluate a potential EK play, according to investment advisor Gregory MacArthur.
• Gateway Inc (NYSE: GTW) is selling products in China for the first time in a pilot program with Digital China Holdings Ltd, the LA Times reported.
• According to The Nation, The Dow Chemical Company (NYSE: DOW) is planning to ask its board of directors later this year for approval to invest in five petrochemical projects in Thailand.
• Cementos Portland Valderribas, a unit of Fomento de Construcciones y Contractas is planning a bid for Texas Industries Inc (NYSE: TXI), the Expansion reports, citing people close to the situation.

MAJOR PAPERS:

• The Wall Street Journal reported that Sprint Nextel Corporation (NYSE: S) is reviewing its options to finance the building of WiMax, a wireless broadband network; a hook-up with Clearwire Corporation (NASDAQ: CLWR) is a possibility.
• The word is out that Liberty Media Corporation (NASDAQ: LCAPA) and EchoStar Communications Corporation (NASDAQ: DISH) will make a joint bid for the satellite communications provider Intelsat, Ltd, possibly somewhere in the $4.5B-$5.5B range, the Wall Street Journal reported.
  
• The Financial Times reported that Congress removed blocks on arms transfer requests by U.K. weapons manufacturer BAE Systems plc (OTC: BAESY), acting after BAE assured them that the transfer requests were unrelated to a defunct British investigation into bribery allegations involving Saudi Arabia and BAE.
• According to Barron's Online's "Weekday Trader," Sony Corporation (NYSE: SNE) is climbing its way back to electronic prominence, but more work remains, and it may be time to take profits.

WEBSITES:

• LiveMint.com reported that Citigroup Inc's (NYSE: C) emerging markets private-equity investment arm, Citigroup Venture Capital International, will reportedly invest $1.5B in India over the next three years, the largest investment by a single private-equity investor in the Indian markets.

I've had a few mortgages in my time, and they've always been the 30-year fixed rate type. You couldn't get me to take an adjustable rate mortgage at gun point, but that's not the point of this post. What I have to say will come to most of you as an oversimplification in the face of the mortgage banking meltdown, but try as I may, I just can't make it any more complicated than this. If I was a mortgage banker facing the wholesale destruction of my lending sector, I'd suck it up quick and proceed as follows:

I would begin to contact all my mortgage clients with notes facing foreclosure, starting with the most serious cases first. I'd make the offer for fixed rate refinancing at current rates with a 2% point fee attached to the note. The 2% could be paid up front, financed with the principle, tagged to the end of the mortgage as an appendage to be paid upon sale of the property, or handled as a separate note. I would, of course, need the blessings of the secondary mortgage market, but when it's a case of bailing water as you're sinking or properly fixing the holes, you only have two choices: You can work together for an effective solution or you can simply look really stupid.

All I'm hearing is a bunch of boo hoo hoo, the mortgages are rotten, what shall we do! I've yet to see just one three-piece suit come forward with a constructive idea. I'm not hearing anything ... are you? If it's really as scary as the 100k a year crowd is claiming it to be, then where are all those wrinkled old farts with their masterful solutions? Perhaps if a couple of those crisp paper misers would slip out of their leather-clad offices for just a moment and network with people who are in fear of losing their homes, we could come up with some compromises and creative solutions that would equally benefit the consumers, the banks, and the economy.

Until and unless I see someone step out from behind the falsely erected shroud of "there's nothing we can do," I have no pity for the mortgage holders, and my position is underpinned with a healthy "shame on you." You did this to yourselves with shoddy lending practices, dubious documentation, and your profiteering, fee-laden attitudes. Now get your asses out of those leather desk chairs and fix the mess you created. It's yours, you made it, now pick up after yourselves. It's the least you can do.

I'm not a huge fan of Suze Orman, but the one thing that I appreciate about her approach is that she brings basic financial topics and common sense to the everyday U.S. citizen who knows little to nothing about how to best conduct their financial lives. It's a shame that financial education is not taught in most public high schools these days along with history and arithmetic, because that sets many kids up for financial failure later in life. But I digress.

While Orman can help make you more financially savvy, there is a contingent of the population that is not heeding her advice -- or any advice, for that matter. Specifically, I'm talking about overextending yourself to attain that McMansion (and everything else you can get with a huge HELOC). Once your finance company starts adding to that cheap mortgage payment -- and it will -- you can find yourself way over your head.

You know what I'm talking about -- "adjustable" ARMs and interest-only mortgages. Why on earth do folks buy these? Put simply, to have the material possessions that present the appearance of financial success -- but are based on just the opposite and a lack common financial knowledge. For a while, the facade works. But when that interest rate goes up or those principal additions kick in, the hurt really starts.

Are massive foreclosures on the near horizon? If I had a Magic 8-Ball, it would read "all signs point to yes!" There is already a glut of housing in many areas of the U.S. and adding even more homes for sale from foreclosures will be disaster for certain areas -- and the realtors that serve them most likely. HUD signs may be more commonplace soon, and subprime home loans and even normal loans will go into in default in what some predict as being in record numbers.