On a national level they’re being foolish but it might actually keep some poor folks in their homes. As far as SD’s regional market goes this is meaningless to us. Conventional loan terms are still conventional loan terms and they’re still more expensive than a teaser rate on an ARM.
The typical Alt-A borrower who couldn’t afford the 5.5% fixed rate on a $600,000 purchase in 2005 isn’t going to be able to afford a 6.5+% rate in 2007, and that $600,000 is more than likely not going to be $600,000 anymore either.
Unlike some of the other loan servicers working with loans sold to Wall Street, the GSEs are well-practiced at foreclosing on delinquent loans and expediting their resale.