Federal Reserve Board Governor Ed Gramlich said in a speech to the Financial Services Roundtable meeting in Chicago in May 2004:

"Subprime borrowers pay higher rates of interest, go into delinquency more often, and have their properties foreclosed at a higher rate than prime borrowers."

And that's just what we're seeing now, as adjusted-rate mortgages reset this year. In fact, five-year ARMs averaged 6.16 percent this week, up from 6.13 percent the prior week. The five-year ARM averaged 5.22 percent last year.

Another popular unconventional loan, or what the mortgage lenders like to call "creative financing," is the interest-only loan, and for those holding this kind of loan, making only the minimum payments during the last two years, the principle has grown vastly.

According to Economy.com, more than $2 trillion in U.S. outstanding mortgage debt, nearly a quarter of all mortgages debts, are of the interest-only variety, passing the two-year introductory period in 2006 and 2007. And the rising interest rates that we're seeing could cause these subprime borrowers' monthly payments to rise by up to 50 percent.

Is it any wonder that foreclosures are up and mortgage payments are down?

"The increase in delinquencies is not surprising," said Mortgage Bankers Association VP and chief economist, Doug Duncan. "We have been expecting an up-tick in delinquencies due to a number of factors: the seasoning of the loan portfolio, the increased shares of the portfolio that are ARMs and subprime mortgages, as well as the elevated level of energy prices and rising interest rates."

In other words, if you're a subprime borrower, the deck is stacked against you. Good luck.

*** And a look at what the Great Depression, would be like, through the eyes of readers...

"It won't be pretty," writes one reader, who calls himself Mr. Magnum. "In fact, ugly will fail to sufficiently describe the events which will unfold across America in the coming three to five years.
 
"Initially, isolated incidences of desperation will be reported in the press as a lunatic gone wild with a gun or a knife, in a grocery store, for a gallon of milk.
 
"Then the media lock down will occur, and all such reports of desperate people doing desperate things for food for their families won't be reported, therefore won't be happening.
 
"Eventually, across America we will be reading local newspapers reports, and hearing sound bites on radio and television, of the fringes becoming the fat tail and felonies for food occurring everywhere.
 
"When America's Second Great Depression takes hold with the bite of a pitbull, around 2010, we will all get to personally experience how our borrowing for widgets and chitoys, our failure to save, and our failure to remember the results of past forays into fiat currency, bring to our own front doors the sacrifice and suffering we Americans collectively thought could never again happen here in the Land Of The Free and The Home Of The Brave.
 
"Sometime in 2012 we will all wake up and realize that we are living in 3rd world economy, here in the last great empire on good old mother earth.

 "As they say, we are going to get not what we expect, but what we deserve. And we will be getting it good and hard.
 
"Mr. Magnum recommends stop spending, sell your McMansion, buy a home you can pay cash for, pay off all debt, buy silver and/or gold, keep a low profile and don't flaunt any wealth you may have. Those who don't have, will remember those who do have and they are going to want to come and take it from you when things get really bad."

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.