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Stupid lenders making stupid loans to stupid borrowers. You might think this sums up what the surge in mortgage foreclosures means to you. You would be mistaken.

That so many homeowners are having such trouble meeting their mortgage payments could very well mean your own home's value has dropped, that you may not be able to get a home-equity loan, or that your retirement savings will grow more slowly than you planned. Conceivably, it could even mean that the global financial system — and by extension the economy and even your job — is threatened.

The current mortgage mess has many causes, but none is more important than the abuse of an arcane process called securitization. In recent decades, creative bankers developed financial securities whose value was derived from homeowners' mortgage payments.

What was new was that, like coffees in a gourmet shop, these securities came in various strengths. Depending on their stomach for risk, investors could have theirs mild or intense. Plain-vanilla pension funds could obtain safer (but lower) returns, while edgier hedge funds accepted bigger risks in pursuit of higher yields.

This parsing out of risk allowed more investors to provide more credit to more households. And the results — at least at first — couldn't have been more positive. Many low- and middle-income households gained the ability to buy homes, and U.S. homeownership soared to record levels. So did house prices in many communities.

But the picture changed after the Federal Reserve began raising interest rates in 2004. Higher mortgage rates plus soaring house prices made housing less affordable, potentially shrinking the market for new mortgages. Rather than allow their lucrative business to shrink, lenders and bankers got creative again, devising new loans with looser terms and lower credit standards.

By late last year this had produced a kind of credit frenzy. More loans and bigger loans were going to people with poor credit histories, questionable incomes, and little or no savings. Short-term speculators hoping to flip properties for a quick profit seized the opportunity for easy, no-questions-asked financing.

Many of these loans featured low initial monthly payments, but a big bump up in rates after a couple of years. Borrowers who stretched or inflated their incomes to meet the lower payments may have hoped to refinance or sell before the bump; now they can't. Moreover, falling house prices make it impossible for them to refinance, setting them up for financial calamity.

Some 2.5 million homeowners — 5 percent of all mortgage holders — are expected to default on their mortgage loans this year and next. This is a record percentage that will mean a whopping $400 billion worth of defaults and $100 billion in losses to investors in mortgage securities. The fallout will hit nearly all of us.

First, home values will sink. Loans will be tougher to get, meaning fewer families will qualify for mortgages. Foreclosure sales will put more properties on the market at steep discounts. Less housing demand and more supply add up to lower prices.

Homeowners will find it more difficult to tap the equity in their homes for cash via home-equity loans or cash-out refinancing.

On the other side of the coin are investors who chose the riskier flavors of the new mortgage securities and now face big losses. If that sounds like someone else's problem, think again. Lots of pension plans that manage the savings of millions of ordinary workers and retirees have invested in hedge funds in recent years. Many of those funds are exposed to the mortgage market.

Most times, the bad financial decisions of others are their own problem. This is not one of those times. The meaning in the current mortgage mess is that so many made such bad decisions for such a long period that it is now our problem.