This makes me think that even high income households who have no problem paying their mortgage, even after resets, may still walk away.

Let’s say someone has been paying $5K a month for a McMansion that they bought with little or zero down in 2004-2006. Once their payments reset to $9K they may decide to simply walk away if they can rent the same oversized house for under $4K. Well, first buy another foreclosed house down the street for pennies on the dollar, AND THEN default (mail the keys to the bank) on the original house.

House prices are supposed to be sticky on the way down, historically. BUT a vicious circle like the one described can make prices fall as fast as they went up in 2003-2005.

Sit back and enjoy the train wreck, er…, the show!