So far, the sub prime crisis has had a limited direct impact on Latin America s mortgage markets.

When normal mortgages did not prime the pump enough, he encouraged them to take out variable rate mortgages at a time when interest rates had nowhere to go but up.

The housing recession the worst in US history and worsening every day will eventually see house prices fall by more than 20 , with millions of Americans losing their homes.

Meanwhile, insolvencies and foreclosures triggered by excessive interest burdens are not reversed by later rate cuts.

Mortgages became more widely available.

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Losses are spreading from sub prime to near prime and prime mortgages, commercial mortgages, and unsecured consumer credit (credit cards, auto loans, student loans).

The problem was not just sub prime mortgages.

Unlike virtually every other country, US residential mortgages are effectively no recourse loans.

Moreover, the US housing market appears to be stabilizing....Overall, the US mortgage market has remained resilient, although the sub prime segment has deteriorated a bit more rapidly than had been expected.

a rapid reduction of insolvent households debt burden, preceded by a temporary freeze on all foreclosures

In the US, by contrast, 21 of adjustable rate sub prime mortgages are 90 days late or in foreclosure.

Mortgage debts, too, must be written down.

But lower short term interest rates have led to higher medium term interest rates, which are more relevant for the mortgage market, perhaps because of increasing worries about inflationary pressures.

After the subprime crisis erupted, mortgage and consumer debt was paid down by households either with their savings or by default.

An interest rate rise might take the heat out of the mortgage market, but it will also chill the rest of the economy.

Some of the innovations associated with the sub prime crisis notably option ARM s, when extended to borrowers who couldn t handle them seem to have little redeeming value.

Its members could not agree even on how to define subprime mortgages and calculate how many such mortgages there were in the United States at the time of the crisis.

Mortgage brokers were happy to get in on the act.

It was called securitized mortgages.

But Greenspan would have served the country and the world better if he had been somewhat more paternalist in slowing the growth of non standard adjustable rate mortgages.

One place to start is the tax deduction for interest payments on home mortgages.

Indeed, the foreclosure rate is increasing.

Even if the US Federal Reserve continues to lower interest rates, lenders will not rush to make more bad mortgages.

The foreclosure relief plan is off to an even slower start, and is likely to run into numerous problems concerning how to rework delinquent mortgages without inducing a lot more delinquencies.

Lower interest rates worked (a little), but for the most part by encouraging households to refinance their mortgages, not by stimulating investment.

The second way that QE might have a slight effect is by lowering mortgage rates, which would help to sustain real estate prices.

The terms of mortgages need to be adjusted to the homeowners ability to pay.

As a result, mortgage brokers maximize their income by generating larger volumes of mortgages, as do the banks that package these loans into mortgage backed securities (MBS s).

But most of southern Europe relies mainly on floating rates. This implies that QE would not reach, say, Spanish households, whose mortgages are indexed to short term rates, which are already close to zero.

In Mexico, all mortgages carry fixed interest rates, unlike the infamous exploding ARMs that left US homeowners ruing their choice of adjustable rate mortgages when interest rates rose. Mexican mortgages are indexed to inflation, but the state mortgage agency links that index to the minimum wage and makes up the difference if mortgage interest adjustments for inflation outpace wage growth.

But mortgage markets remain underdeveloped in most emerging economies.

What is needed is a quick write down of the value of the mortgages.

In the fourth act, the real estate bubble will burst.

The state is an epicenter of the housing bust and the foreclosure crisis.

Around sixty sub prime lenders have already gone bankrupt.

Some limited previous experience with mortgage modifications is not encouraging.

But it is the economic slowdown that renders all developed countries less resistant to the financial shocks resulting from the sub prime problem and from the mixed loan packages that are then used to dilute the risks attached to sub prime debt.

But that is precisely why a government managed mortgage market is dangerous.

As the US and Europe lower interest rates to try to revive their economies and calm financial markets, the most significant impact of the sub prime mortgage crisis for Latin America may turn out to be inflation.

Forgiveness of underwater mortgages (where the outstanding loan exceeds the home s current market value), as well as reducing the foreclosure overhang of some 1.5 million homes, must be part of that solution.

In short, QE lowering long term interest rates by buying long term bonds and mortgages won t do much to stimulate business directly.

Wall Street has polluted the economy with toxic mortgages.

Sub prime mortgages made the American dream come true.