CJ,
Here is the challenge. When these arms reset, you don't get an instant spike in defaults. A borrower might miss the first payment after the default. Next month comes and they have 3/4 of that mortgage payment in the bank so they make the January payment in February, Feb in March and March in April and April in May. That a rolling 30 and the lender won't freak out about it as long as they don't get down another month. The non-payment of 1 months mortgage covered the diffence in old payment to new payment for say 4 months. They will have gotten some harrassing calls but no foreclosure is in process. Now they miss the second payment and the lender gets really worried and the conversation probably gets less friendly. This hypothetical case may not go into the foreclosure process until the end of the year and then it's another 4-6 months before they are officially evicted. You can see from that timetable that this problem isn't going away anytime soon.
The smart thing to do is to call your lender the month before the reset is to take place and ask for help. I think people will be surprised how many lenders will try to work something out, including extending the original terms for another year. It's happening.
The larger problem is that many folks are in subprime loan programs which no longer exist. They might get another year at the original fixed rate, but at some point that game ends and unless they really try to clean up their credit and improve their credit scores, the are S.O.L. Another issue is that rates have shot up 200bps in the last 2 months on the risk issue and the lack of demand from the secondary market, AKA Wall Street.
Can you imagine if A paper rates went from 6.25% to 8.25% in 2 months? The subprime market is much smaller, but a small portion of a giant pie is still a sizeable piece. The industry was $600 billion in 2005 and 2006 each.
AI
Market Data 
Markets 
