I don’t disagree that the ARM loans, along with many of the other exotic lending products, will be a substantial factor in the coming price declines. What I do disagree with is the notion that all, or nearly all, of the people who got ARMs in the last two years fall into the category of people who used an ARM to leverage themselves into a house they could not otherwise afford.
People who purchased at 2.5 times income are indeed rare. But, I don’t think 80% of people who got ARMs in 2004-2005 will go into foreclosure in the next couple of years. Perhaps 80% of first-time homebuyers who purchased with ARMs in the last two years will, but that’s an entirely different thing than simply taking the number of ARM loans written in 2004-2005 and saying x number of people are going to go into foreclosure. The latter ignores trade-up buyers (who probably had substantial cash to put down) and those who, like me, refinanced into an ARM despite qualifying for a more traditional loan product.
