Agreed, FSD. It’s going to be very interesting to see how many of the so-called Alt-A and prime loan resets actually end up as foreclosures. If the Fed rate/LIBOR continue their downward trend, these folks are looking at a minimal increase in payments (and possible decrease – crazy to think it but certainly possible). Even with payment increases, by definition these folks have solid credit and I would guess that it would take a drastic and truly unaffordable payment shock to drive them to mail in the keys. I think mailing in the keys is easier bantered about than actually done, when it comes down to brass tacks, particularly if you have great credit.

These folks are also probably better candidates for loan mods – very good credit histories, and if the intro rate is in the 5-6% range as opposed to a subprime 2% teaser rate, they should be able to qualify for a reasonable mod rate that will appeal to both sides of the deal. I would expect mods to increase in this demographic.

The problem these people face, however, is ultimately being upside down and strapped into increasing payments as the Fed/LIBOR tightens, which is inevitable. The current movement is in their favor, but the tide will most certainly turn eventually. These folks may very well not find themselves in trouble immediately after their impending resets, but instead further down the road.