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I am not a Doom-and-Gloom guy, but the table is getting set for a bitter, bitter dinner that my entire industry helped to cook.

Rather than get very deep into the particulars, I will instead highlight some key points collated from the papers.

Story #1: 25% of all mortgage debt will adjust in 2006 and 2007, according to Economy.com.

Story #2: Interest rates have risen as expected, but the Fed is signaling that it may keep raising the Fed Funds Rate to stave off inflationary pressures

Story #3: Mortgage lenders are tightening the limits of what they'll lend and to whom

Story #4: Most homeowners with Adjustable Rate Mortgages have no idea when their mortgage adjusts, and by how much it can adjust

If you put these four stories together, what you get is one great big mess.  And all of this leads to my crack hypothesis:

Mortgage lending will crash the housing market.

Now, before you go quote me, or link to this post as proof that something terrible is happening, I want you to follow my logic and to understand why I am saying what I am saying.  If this argument is taken out of context, you miss the point.

Here's is how it can all fall down:

First, adjustable rate mortgages will "adjust" and (in some cases) begin to amortize, increasing homeowners' payment beyond their means.  Rather than skip mortgage payments, homeowners go delinquent on credit cards and other debts.  Credit scores drop as homeowners struggle to make ends meet.

Alternate ending: Homeowners make payments, but cannot set aside money for savings, retirement, and insurance plans.

Next, homeowners that can't make ends meet go 30 days down on their mortgage, and then 60 days down.  At 90 days down, their lender begins foreclosure proceedings.  The repossessed home sells at a discount.  Home values decrease because an artificial supply in housing has been created.

Alternate ending: Entire neighborhoods go flat on value because their are so many "great buys" from foreclosed owners.  The take-off for "fringe" neighborhoods is delayed for a few years.

Then, in the worst possible ending, flattening property values decrease the likelihood that homeowners will be able to "remortgage their way out of foreclosure".

This creates a nasty spiral down, down, down because without equity buildup, there is no "loan of last resort". 

I've talked about this once before in context of California's ultra-low foreclosure rates.

Now, we can avoid this Perfect Storm if any of the following three scenarios come to fruition:

1. Homeowners remortgage in advance of their mortgage adjusting
2. Global and/or domestic economic or geopolitical disturbances set the economy off-track long enough for the Fed to halt rate increases
3. Mortgage lenders loosen their lending guidelines to reach more homeowners

It is likely that one -- or all -- of the above will happen. If it doesn't, though, it will ultimately be the mortgage industry that tackled Real Estate, not speculation or the famed bubble.

Again, please don't take this entry out of context.  I'm just reaching one possible conclusion based on the news I read.

If you have an adjusting loan and are among the $2 trillion in adjustable debt, don't be nervous.  Seek qualified guidance be prepared for change. 

There is no better way to manage the unknown than with preparation.

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Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.