There’s so much talk about subprime as the source of our woes but the fact is that there are a lot more ARMS out there then simply subprime. Subprime borrowers by definition would have the least ability to weather an ARM reset, but what about the rest of the ARM holders? In the past the simple answer to the upcoming reset would be to refinance. The way lending is tightening and values are declining, however, refinances will be fewer and further between because the equity just won’t be there.

An attorney friend of mine came over the other day and he said he’s is seeing four or five out of six deals that are more than 80% LTVs “blow up” in the eleventh hour. Banks just aren’t doing them unless they are FHA loans. At the same time a huge portion of the homes that were bought over the last five years were financed with less, much less, than 20% down. This means that as these resets occur even A borrowers are going to be faced with real challenges. Refinancing will not be an option without bringing huge chunks of cash to the table and if the borrower wasn’t in a position to bring a big chunk when they bought the property rest assured they probably don’t have it now.

So where is the end? This chart that I’ve seen circulating and swiped for this post might shed some light.

You can see that the bulk of the subprime disaster started to wrap up at the beginning of this year and should be all but history byt the end of the year. Look right behind subprime however and you’ll see Option Adjustable Rates, Alt-A, and Prime resets right behind it carrying us over until the first quarter of 2012… I’d be interested in anybody else’s read on this.

Click on this thumbnail to see the full-size image.