Actually I have been expecting this. People have been foolishly getting those adjustable rate mortgages, and not taking the future into account.
Where does everyone think those rates are going to adjust to? It is a big mistake not to lock in the current great rate.
Another problem is that many people buy too much house, and by saving that point or two, many people bought even more house by only thinking of the current rate.
Once the rates go back up, which happens when the economy improves, you are going to see an explosion in foreclosures. Tens of thousands are going to lose their houses. But while there is nothing anyone here can do about that, it actually will be a good time to invest in those houses.
Many people are going to make a lot of money off of other peoples foolishness. The banks that pushed these things are going to take a hit also. (Some think the bank benefits from foreclosures, but they really don?t.)
I would not invest in the banking industry until after this hit has affected the market, and the overreaction pushes their stocks below what they are truly worth.
The banks actually could weather this storm a lot better if they created a few consumer friendly responses to financial difficulties.
Instead of making things harder on the borrower by demanding the money immediately, then foreclosing, and selling the property at a loss, they could work with the people a little more. They were the ones who pushed this stuff after all.
Anyway if a person is having trouble making their payments, the bank could offer to give the borrower a few options that would help them out, help them keep their house, or help them sell it without as much loss to them and the bank. They could give an extension where payments can be skipped for 3 to 6 months. (Interest just added to the loan.) And/or they could rewrite the loan, extending it, and reducing the payments.
Working with people would be so much smarter then the way they currently go to war the second a person misses one payment for whatever reason.