For all the talk of a subprime meltdown, there ought to be a dawning realization that what we have today is a vastly broader problem than loans to people with weak credit.

The news on Friday that shook Wall Street was a report from the Bureau of Labor Statistics which said the non-farm employment count had dropped by 4,000 jobs. This is a big deal because many forecasters thought we would see the creation of an additional 100,000 jobs or more.

Why anyone found the jobs report surprising is curious. What did smart analysts on Wall Street think would happen when one of the largest sectors of the American economy slowed down?

In a nation with a $13.5 trillion economy it follows that real estate is important. If real estate really represents about 20 percent of the national economy, it follows that a 10 percent slowdown in the real estate sector will also represent a 2 percent drop in the gross domestic product.

Can an increase in subprime foreclosures do such damage? Not hardly.

Speaking at the National Press Club in May, John Robbins, Chairman of the Mortgage Bankers Association, told the media that "fully 35% of the homeowners in this country have no mortgage. They own their homes free and clear. Thirty-five percent. Plenty of stability there. Now let's look at the segment where our current troubles are. The current homeowners that are sub prime borrowers with sub prime rate mortgages 5.1%. We are seeing a foreclosure rate of 10.8% annualized among sub prime ARMS. So what percent of homeowners are we really talking about here? 10% of 5.1% of all homeowners. ... In other words, one quarter of one percent will ultimately face foreclosure."

If Mr. Robbins is right and the problem isn't subprime ARMs, then what is it?

It's toxic ARMs, what Pat Combs, president of the National Association of Realtors, calls "exploding ARMs."

Even more blunt has been HUD Secretary Alphonso Jackson. In June, Jackson said borrowers needed an exit strategy from "suicide loans."

If it's the subprime market which is so troubled, how come borrowers are having a tough time getting jumbo and Alt-A loans (mortgages generally for those with better than subprime credit)? Why is it that lenders are dropping option ARMs, 2/28 and 3/27 ARMs, interest-only loans and stated-income loan applications? Why are so many huge lenders cutting back -- including lenders who largely specialize in Alt-A loans? Search the Mortgage Lender Implode-O-Meter and see what it has to say about struggling lenders and Alt-A financing.

Just look at the big home builders floundering in the marketplace with clumps of unsold McMansions. Does anyone believe that opulent homes are largely or often financed with subprime mortgages?

The Bush Administration has cobbled together a politically-viable and practical program with the FHASecure effort. The plan won't help every troubled borrower, it doesn't make up for the failure to adequately regulate lenders, but it will help many borrowers with toxic loans -- whether they are subprime borrowers, Alt-A borrowers or prime borrowers.

The reason so many "mortgage meltdown" news reports refer to subprime loans is that such financing was extended to the borrowers with the weakest credit histories and thus those most likely to fail first in the face of massive mortgage re-sets.

But our mortgage problems are broader, they concern "nontraditional" mortgage concepts in general rather than subprime loans in particular. We're now beginning to see middle-income borrowers with Alt-A loans failing, by next Spring we'll find a lot of luxury homes on the market. Like magic, the "subprime mortgage crisis" has now ended -- replaced by a wider set of issues.

The idea of broader mortgage concerns is beginning to be accepted. For instance, in its latest survey of delinquent and foreclosed loans issued just a few days after the FHASecure release, the MBA said "the performance of prime and subprime adjustable rate mortgages (ARMs) is contributing significantly to the overall results." Not just subprime loans, but ARMs specifically.

The FHASecure program maintains baseline FHA standards which means the government will only insure loans where borrowers have equity and income that have been verified. No steep mortgage re-sets, computerized appraisals, prepayment penalties or stated-income loan applications here, no excess risks. That's a prudent approach for the FHA -- and for lenders.

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