The latest numbers from 2005 indicate that 36% (yes, over a THIRD) of all mortgages written last year were "non-traditional" - ARMs, No/Negative Interest, etc. Home prices have become so unaffordable, particularly on the coasts, that these high risk/reward investment tools transformed into common home buyer instruments. Unfortunately, these types of mortgages have adjustable and balloon payments in them, and guess what?
1. Rates have risen. The super-low payments that the borrower's started with are no more. Every month in the US, several billion $ in mortgage payments reset and increase.
2. The underlying property values have dropped. If a borrower finally decides to refinance into a conventional mortgage, he/she will have to have the property appraised beforehand - and guess what? If the property was purchased a year ago, there is a high probability that the appraisal will indicate that the purchaser can't borrow what he or she owes on the place.
What does this mean? Big trouble. Call it a combination of investment mania, greed, and horribly loose lending standards.
For a full scoop, checkout the great cover story from BusinessWeek (a very fine journal, I might add):