Fitch Ratings has this release. "Beneath the strong performance of U.S. subprime interest-only (IO) mortgages in recent years may lie substantial payment shock to borrowers as the housing climate continues to cool and refinancing becomes more difficult."

"'The payment increase for an IO at the rate reset is high even if rates do not rise, and is mostly due to the rate reset with only a small portion comprising principal amortization,' said Suzanne Mistretta. 'Because subprime IOs have high margins and low initial rates, the payment increase from the rate reset could range from 40% to over 50%, and the high margins assure that the initial rate cap, which hovers around 3%, is reached.'"

The sector is the subject of a new report. "Many U.S. homeowners with adjustable rate mortgages are in store for a serious financial burden when their loans reset, but the losses from any defaults are unlikely to weigh much on the mortgage industry as some analysts fear, according to a study released on Tuesday."

"The report by the real estate information service estimated there may be up to $110 billion in losses as homeowners with the riskiest adjustable rate mortgages, especially mortgages with so-called teaser rates under 4 percent, default to escape the cost of rising rates."

"Those are the people that mail in their keys,' said Christopher Cagan, the information service's research director. 'Some of these people don't have much of a downpayment so they don't have much to lose.' Cagan estimated 1.4 million of 7.7 million adjustable rate mortgages sold in 2004 and 2005 will be at risk of default."

"If households with those mortgages were to default, the financial fallout would be limited, according to Cagan."

Peter Millers' take at Realty Times. "HUD's 2007 Budget Summary (is) a document which ought to make a lot of people take notice. 'Congress recognizes that today's high cost loans negatively impact consumers, communities, and the economy. To address the problem, Congress is considering legislation to regulate these types of loans and the lenders who originate them.'"

"HUD, in a few years, will be able to cite the quote above as evidence showing it was aware of the toxic loans available today. But HUD does not regulate lenders. At the federal level, that's a job for other departments, offices and agencies."

"Ask yourself: Why is it that only hardworking subprime borrowers are impacted when 'mortgage payments escalate or balloon notes become payable'? Why have federal banking regulators allowed, and continue to allow, the origination of loans which clearly represent a looming national debacle?"

"This is not a problem that can be ignored by those who own their homes free and clear. This is not something that does not impact those who have financed with dull, boring self-amortizing loans that required something down. In either case, guess what will happen to the value of your home if nearby properties are dumped on the market or foreclosed?"

"If it's true that 'Congress recognizes that today's high cost loans negatively impact consumers, communities, and the economy,' then why hasn't Congress or the executive branch done something meaningful to resolve the problem?"