I don't work in the secondary market, but they aren't using price to to get out of these products. They are not able to sell these loans for the former premium. The fixed rates products still sell alibet not well. The is a huge glut of non purchased MBS secured by this product, option arms and alt-a. The market is correcting and killing us. Subprime rates have raised dramatically because the secondary market won't pay a premium. Expect to see this continue, and see a further spread in the rates between subprime, alt-a and jumbo and conforming.

Wells and nat city have already bumped jumbo pricing by over a basis point that will be spreading 

Ann I don't want to seem pendantic, but I think that (as bad as what you said above sounds) still understates what is happening.

Let me explain more clearly my point.

A broker makes a loan that loan is (hopefully) shopped with several lenders on who gets the best deal. and placed with wholesale lender. These wholesale lenders as a rule are funding these loans with their own line of credit putting them in huge bundles of millions of dallars of loans and selling them as a rated mortgage backed securities (MBS). Those securities are sold on the secondary market as a rate grade based on their anticipated level of performance. Those securities have not been performing as rated in the subprime sector and spreading to the alt-a sector. This happens with all loans including fannie and freddie deals that is what provides the liquidity for the mortgage market. Well fannie and freddie deals are the highest rated and hence pay the lowest premium of any mortgage backed security fixed income product. These other products were paying much higher premiums so foreign buyers etc... flocked to them. Now it turns out those were bad bets. ( see bears stearns which just wrote of billions in mortgage hedfe funds) So as one would expect everyone on the secondaary market is walking away from these products. These lenders have millions of doallars in loans on their credit lines which they cannot sell for the profit they were expecting, and even more importantly can't sell them what they paid for.

Now go back to what I wrote earlier they have these loans on huge lines of credit and are sitting on these loans they can't sell. The people lending them the money are demanding more capital to keep the lines open. Here is an example people might be more familair with say youo buying a stock with your margin account having it go down and you have to cover the margin cost. when you use leverage to buy or lend money and that money doesn't come back the person who lent you money wants more cash.

American home mortgage for example didn't have the cash so their credit line was shut down and they couldn't lend. Some of these other places are able to meet the margin payment, but still can't sell their loans ( like in a margin account the stock you bought can no longer be sold to pay off your margin loan). So know they have to make only the loans that people are buying ( hence the cutbacks at every single lender in the last couple of days on their alt-a product. The next wave of mortgage company bankruptcies will happen because many lenders business model was dependent on originating these loans that no one is buying they aren't making money. So any mortgage company without a deep pockets parent company like a bank or wall street firm etc... is going to run out of cash long before the market picks up and they can unload the loans sitting on their books.

Most of these places subservice anyway they are just a name on the mortgage statement the business model relies on having credit to lend and being able to sell those loans at a high enough price to cover interest and operating expenses.

Everyone needs to realize this isn't about these lenders being well run, making good or bad decisions it is about how much cash they have left. The big boys will be fine, but still hurting dearly.

What does this mean for the masses. Well brokers have just had their product offering cut by 10 to 25 percent and that means an equal part of their client base. The guy trying to sell his house next door just saw 20 percent of the people who were able to buy it disappear. Unless liquidity returns to the market it could be a very  very dark time ahead.