Looking at the graph in the WSJ, this could be a worst case scenario: If you look at pg 28 of this link: http://www.billcara.com/CS%20Mar%2012%202007%20Mortgage%20and%20Housing.pdf you’ll see that ARMs are about 25% of the entire US 1st mortgage debt. Looking at the WSJ graph, I can roughly say that the worstcase default rate (weighted average) can go to 10% for all ARMs put together. That’s 2.5% (slighly more if you count equity loans) of the whole pie, or ~$300bln. I think Enron was probably worth that much at the peak. The stock market lost this much in 1 day couple of days ago. On the national level, the recession or crash of housing will probably need to come from mass psychologcal effect. Although anything is possible locally.
