Ruthless defaults are absolutely occurring – this is no secret to those inside the industry. They are happening in very noticeable numbers. The concerns moving forward are the effects on ability due primarily to upward modification of payments and, to a lesser extent, income reduction. I’m talking about those who have ability now but may not moving forward. Big, big issue in the industry. The fizzle of the Great Re-set Tsunami of 2008 has granted the industry (and borrowers) temporary reprieve, but there are storm clouds on the horizon.

Those who maintain ability to pay regardless of re-sets are in a different category and are the real wildcard here. Wildcards are dangerous. There is certainly a growing belief in the industry that these folks’ credit is for sale if the price is right. It’s a combination of being underwater by enough and having a re-set that pushes the spread between the mortgage and a comparable rental to a number that is too attractive to pass up. What’s your credit worth – erase $200K in negative equity and decrease my monthly housing cost by $2500 – hit the deal button. Credit for sale.

I just don’t see a way out other than loan mods – including interest rate freezes, rate reductions and balance write-downs. Dodd-Frank are on the right track, at least in terms of identifying the solutions. I’m not saying a govt bailout is the way to go, but modifications need to be made if they want to contain the ruthless defaults. Otherwise, it’s truly a free market wild ride. Which I’m not necessarily against. But I don’t think we’re going to avoid more major intervention and industry gymnastics.