Second quarter statistics are out for mortgage delinquencies. The information doesn’t look good. By the same token there are articles minimizing the risk of sub-prime and alt-A influence on the total mortgage picture. The problem lays in “there is no total mortgage picture”. I can easily understand why investors are outraged and confused.

I spent the last four days researching the statistics and am still trying to figure out why the percentages do not add up to 100. There are gray areas that overlap and the conditions are reported in more than one category. Is the investment risk inflated to shock or minimized to present a false sense of security? Investment risk does not stop at sub-prime and alt-A.

Any ARM or home purchase with an initial second mortgage presents a higher risk.

There may be payment shock due to reset. The graphs and pie charts indicate that ARM mortgages will continue to reset at a higher level and reach its peak between January and March of 2008.

The buyer has a minimal financial investment. 39% of home purchases in 2006 utilized a simultaneous close and subordinate mortgage as all or part of the down payment. It is a new twist on “no money down”. It looks like 80% equity in the mortgage pool, but with no risk to the buyer. Asset-backed securities containing the second mortgages are essentially worthless if the primary mortgage goes into default and gets foreclosed.

The rating companies are slowly coming into line to more accurately identify the actual risk and downgrade the assets. Too little, too late to maintain credibility.