Shocks and Lies.

Foreclosures are ramping up across the country, but you don't hear much talk about the "four Ds" this time. Downsizing, divorce, death and disease are not the big culprits in the current industry shakeout. Instead, falling home values, overextended consumers and loan fraud appear to be driving forces behind the increase in subprime mortgage defaults.

Payment shock and shoddy underwriting seem to be to blame. Too many borrowers took out adjustable-rate mortgages with risky payment reset characteristics to buy homes they probably couldn't afford under more conservative underwriting. And low-documentation loans allowed some borrowers to, shall we say, exaggerate their repayment capabilities. These products have been nicknamed "liar's loans" for a reason.

Too often, these transgressions occurred with the tacit support of real estate agents and loan originators.

Not surprisingly, it's the loan servicing end of the mortgage business that will be challenged with managing this mess.

Some of the data are looking grim. A study by First American CoreLogic predicts that 13% of subprime ARMs originated between 2004 and 2006 will end up in ...