Well, what do you think is going to happen when someone with a poor credit history can "buy" a house without a downpayment and with crazy-low introductory mortgage payments - only to see those payments jack up by 50 percent or more after the introductory period runs out? That pretty much sums up the subprime market. Dirk van Dijk, director of research at Zacks Investment Research, notes that subprime adjustable-rate mortgages originated in 2006 have a 4.62 percent default rate, which is 52 percent higher than loans a year earlier and 137 percent higher than loans made two years earlier. "Out of the group of people who bought homes in 2006," he's quoted in Marketbeat, "nearly one in 20 had already defaulted on their mortgage by the end of last year." Incredibly, many of those defaults happened even before the initial rate adjusted higher.
BTW, hedge fund manager David Einhorn, who put up a stink about the way OC-based New Century Financial was being run, has resigned from the board. Einhorn is a principal at Greenlight Capital, which owns 6.3 percent of New Century shares. New Century is under criminal investigation into securities trading and accounting.