The loans that got us into this mess were generally the first to fall. Variable rate mortgages written without documentation for people with sketchy credit histories shocked nobody as their slide became an avalanche. But, the good stuff is starting to follow. An increasing amount of fixed rate mortgages offered to borrowers with solid credit histories are feeling their ways to foreclosure. Blame unemployment for this one. When people can't work, it gets pretty hard to pay the mortgage.

Fixed rate, high quality mortgages had a foreclosure a year ago. Last quarter, it jumped to 33%, according to a Mortgage Bankers Association report. As this happened, the amount of homeowners behind on their payments or in foreclosure just set another record high ... for the ninth month in a row. Subprime mortgages are headed in the other direction. Low quality adjustable rate mortgages are now 16% of new foreclosures -- compared to 35% last year. And, more than 18% of Federal Housing Administration loans are anywhere from one payment behind to in foreclosure, with California, Nevada, Arizona and Florida worst off: together, they accounted for 44% of new foreclosures.

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If you're worried about the value of your home, 2010 could bring a little bit of good news. The National Association of Realtors reported Friday that home prices could edge 4% higher next year. In 2009, home prices declined by 13%. The association's chief economist, Lawrence Yun, says, "Going into 2010, I anticipate that prices will also begin stabilizing or begin to modestly improve." He continues, "I don't think the fear factor will be at play in 2010."

First-time buyers taking advantage of a range of incentives -- including an $8,000 tax credit -- accounted for 47% of transactions this year, up from 41% in 2008. With the credit extended to April 30, 2010, there's hope that first-timers will continue to breathe some life into the real estate market. According to Yun, approximately 2 million people gobbled up the tax advantage.

Some of the jobs that have disappeared through this recession are gone forever, it seems. Even when the market turns, and even gains momentum, we could be stuck with a fairly weak employment market for a while. The recovery will take longer than we'd like, putting more distance between now and the top of the next market run. We've lost 7.2 million jobs since December 2007, and the predictions of some economists that we'll get them back by 2014 may actually seem optimistic.

Unemployment is at 9.8%, and it's expected to clear 10% early next year. Then, we have the specter of a jobless recovery with which to contend. "Full employment" is often considered to be an unemployment rate of 4% to 5%, but it could be a while before we get there. The last downturn, following the dotcom bust, resulted in a peak unemployment rate of 6.3% in 2003 ... and we're already well past that.

Why is the recovery going to be such a grind? Check out the four major reasons after the jump.

For many companies, the Google (NASDAQ: GOOG) search engine is the lifeblood of distribution. But, there is a problem: What if Google decides to get into the business itself? It's certainly a big-time threat.

For example, there are signs that Google is planning to enter the online mortgage business. Essentially, the service would allow users to search among a variety of lenders, looking for the best deal. Yes, it sounds like LendingTree, huh?

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.

Early estimates of a contraction in the U.K. economy were not enough. First quarter 2009 estimates were revisited, showing a 2.4% fall in gross domestic product from the last quarter of 2008 to 2009. This downward revision made the first three months of the year the worst since people wore skinny ties, hated communism, and bore nicknames like "Buzz."

In the second quarter of 1958, U.K. GDP plummeted 2.6%, though the 2.4% threshold matches the depths hit in 1979. The original 2009 Q1 estimate was -1.9%, according to the Office for National Statistics in London.

Outspoken congressman Barney Frank has no shortage of critics, and they're sure to be out in force today. This morning, The Wall Street Journal reported that the chairman of the House Financial Services Committee, along with his colleague Anthony Weiner, is actually recommending that Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) relax their lending standards on condominiums.

The controversial request follows a decision by both Fannie and Freddie to tighten mortgage-lending standards for condos. In March, Fannie said it would no longer guarantee mortgages on condos in buildings where fewer than 70% of units have been rented, up from its previous benchmark of 51%. Freddie is due to implement similar measures in July. In a letter to the CEOs of both mortgage lenders, Reps. Frank and Weiner expressed their concerns that the higher standard "may be too onerous," and asked the lenders to "make appropriate adjustments" to their approach.

Late Tuesday, Freddie Mac (NYSE: FRE) reported that its quarterly net loss checked in at $9.9 billion thanks to rising delinquencies. The company also blamed the results on continued impairments on its holdings of mortgage-backed securities. On a per share basis, FRE's quarterly loss increased to $3.14 a share, compared to $151 million a year ago, or 66 cents a share. The mortgage lender's total revenue dropped to $771 million from $1.41 billion a year ago.

FRE put aside $8.8 billion in provisions in order to cover credit losses for the first quarter, up from $7 billion in the final quarter of 2008. FRE attributed this to the increase in the number and rate of delinquent mortgages, coupled with increasing foreclosure-related losses.

According to a report today in The Wall Street Journal [subscription required], Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) -- those twin titans of mortgage mayhem -- are planning to dish out $210 million worth of retention bonuses over the next 18 months. James Lockhart, director of the Federal Housing Finance Agency, explained that $51 million in payouts were distributed in late 2008, with the rest of the bonuses to be disbursed through 2009 and into early 2010.

The news is already raising politicians' ire, since Fannie and Freddie are staying afloat only through the grace of government bailouts. The two lenders reported combined losses of roughly $108 billion in 2008, says the Journal, yet 80% of Freddie's employees and 61% of Fannie's payroll will score retention bonuses based on this bleak operating performance.

Subprime mortgage defaults peaked and will slowly begin to slide during the next two years.

But don't get excited -- option ARMs and ALT-A mortgages are now beginning to rise at a very rapid rate. According to analysts I follow, notably Ivy Zelman, the next tsunami will be larger than the one we just went through.

And the banks are not currently valuing these mortgages as if they will default at this rate.

Be sure to read all 7 reasons the stock market isn't going up any time soon.

Michael Shulman is a contributor to OptionsZone.com.

This post is part of our feature on Money Winners of 2008. See all 20.

Lots of people thought real estate was overpriced. Many worried that banks were giving out mortgages too cheap. But what did you do about it? (Either to help the situation or to make money.) Jeff Greene, a real estate mogul in California, actually found a way to bet against the subprime mortgage folly. He made $450 million -- at least that was the count earlier this year.

Well, he didn't just think of it on his own. He basically took the idea that his friend, hedge fund manager John Paulson, had. Paulson thought that, as an individual, Greene wouldn't be able to do this complex a transaction. According to the Wall Street Journal he even used special software so investors in a hedge fund Paulson created just to exploit the subprime crisis couldn't pass on his strategy.

How Greene and Paulson made money involves two financial terms you've probably had to learn this year and never want to hear again. Collateralized debt obligations (CDOs) are the way mortgages are packaged and sold to investors in various slices of risk. Credit default swaps are the holders of those investments insured themselves -- by buying what was like unregulated insurance from one another. The credit default swaps are what got so many big companies in trouble -- they had to pay up on investments that went bad. So Paulson shorted CDOs and bought some credit default swaps.

The entire planet's mortgage crisis could have been so easily averted.

If only all of us were Amish.

While I dream of a world filled with people who honor the land and decry technology that is unnecessary (did you know? The Amish do use technology, but only if it's necessary -- milking machines, yes; Hummers, no), I understand that you can't unring our media- and technology-addicted culture's bell. On the other hand, it's great to be the mortgage banker to the Amish. Bill O'Brien, mortgage banker at the Hometowne Heritage Bank, has had one late payment this year in his $100 million portfolio. A few days late. And he's never had a loss on an Amish loan.

The risk profile is great, sure, but the work is hard, he says; he puts 1,000 miles each week on his car servicing his clients. (Sort of ironic, I think, given the Amish don't drive.) Interestingly, the Amish mortgages can't be jammed into CDOs or other securitized packages; due to an obscure legal rule, mortgages for homes without electricity, or homes that aren't insured, can't be securitized.

What can other mortgage bankers learn from O'Brien? Instead of relying on credit histories and scores or proof of financial stability, he talks to the borrower's father, and usually his father-in-law, too. "It takes a team to make a farm go," he tells NPR. If only if all of our families could operate in that manner.

Just when you think that the economy can't suck any further, along comes news that U.S. employers shed 533,000 jobs in November. That's the biggest decline since 1974.

Stock markets are trading down because the figures were far worse than what economists expected. The unemployment rate was a whopping 6.7% but that figure is a bit misleading because many people have given up looking for work.

Former Treasury Secretary John Snow put it bluntly: "This is really bad news." That may be the understatement of the year. The economy has reached a state of wretched awfulness not seen since my grandparents were young. Everyone is being pinched. I have family members who have lost their jobs and I have told them that I see no hope for them returning to work any time soon.

Maybe the job losses will finally give Congress the kick in the butt in needs to aggressively intervene in the economy. Jobs are a lagging indicator, indicating that the economy may plunge further into the abyss. That means that the U.S. government is going to have to help some people who in more normal times would be told to walk the plank.

Freddie Mac (NYSE: FRE) said today that it received a notice from the New York Stock Exchange (NYSE), warning that the mortgage firm could be delisted due to its rock-bottom share price. FRE has been trading below $1 for more than 30 days now, and must notify the exchange by December 2 whether it intends to rectify the problem.

If Freddie does decide to meet the NYSE's listing requirements, it will have until mid-May to address the share-price issue; if not, its common stock and preferred stock are subject to suspension and delisting. In a statement, Freddie Mac said it's "currently working with its conservator, the Federal Housing Finance Agency, to explore options relating to this deficiency and has not yet determined its response."

Earlier this week, Freddie's sister Fannie Mae (NYSE: FNM) received an identical warning from the NYSE. The troubled siblings hit the headlines for somewhat more respectable reasons earlier this morning, when the pair announced they would temporarily halt foreclosures during the holiday season.

After opening broadly higher this morning, FRE has fallen to a 6% loss at 46 cents per share. Sibling Fannie is faring better today; that stock is up roughly 9% at last check -- though today's gain takes the per-share price only as high as 36 cents.

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.

It really is not all that shocking with financial firms like Citigroup (NYSE: C) hitting multi-year lows, US financial companies may need another $1 trillion in capital.

According to Reuters, "The U.S. financial system still needs at least $1 trillion to $1.2 trillion of tangible common equity to restore confidence and improve liquidity in the credit markets, Friedman Billings Ramsey analyst Paul Miller said."

Miller points out that US financial companies have $37 trillion dollars in debt outstanding.

What is not so clear is why things will get so much worse, why such a huge amount of capital will be required? LBO debt is substantial, but not to the extent that it would move the needle to $1 trillion. Many mortgage-backed securities have been sold off or hedged.

The real issue now would appear to be consumer debt. If unemployment rises above 8% and credit become harder to come by, the defaults on car loans, mortgages, and credit cards could rise into the hundreds of billions of dollars. It is important to remember that there is toxic paper attached to these pools of loans as well.

The credit crisis started with complex derivatives. It may end with the poverty of the average man on the street.

Douglas A. McIntyre is an editor at 24/7 Wall St.