resets have nothing to do with this. Most loans in default have not even hit their first reset. Almost half of subprime loans in default came after a modification of some sort.
The negative equity effect will be what gets everyone because it crosses all socio-economic boundaries. Pay Option ARMs are another killer just waiting on the horizon to slam the market.
You saw the devastation that came from subprime. In CA, ALT-A is a 50% larger market and acting just like subprime did a year ago with defaults ramping to nearly 20% across the alt-a universe. The average CLTV on Alt-a purchase loans in 2006 was 89%. Most are now underwater now. 83% were limited doc loans. In the subprime universe only half were. 45% are cash out refi’s meaning what do the borrowers have to gain by staying, they already cashed out.
In addition to Pay Options, those with Home Equity Lines/loans are mostly underwater as the average CLTV across that uninverse was 85% or so.
IF we had all the same loan programs as we had from 2002-2007, I would conceed. But, now that mortgage lending has gone back to 1990, I think that the foreclosure nightmare is in the early phases, housing prices will continue to fall and the negative equity snowball effect will touch more homeowners than not.
