I believe that because a loan is “stupid” does not mean it will go bad, nor will even a majority of the ARMS resets cause massive defaults. The fact the foreclosure rate was up “93”year of year in the sub prime areas is a meaningless and deliberately alarming statistic.
After all, if sub prime mtgs are about 6-10% of the market and the usual default rate is even a very high 20% that is STILL only 20% of 6-10% or a mere 1.2-2% OF THE OVER ALL MTG MARKET.
Add to that the fact that about 60% of those who took out ARMS in the 2002-2005 years have already refinanced into fixed rate as is attested to by the head of Countrywide Mortgage Co and It is quite easy to see that this problem, while certainly real is vastly over blown.
You are of course correct that not every stupid act turns out tragically wrong. Just look at the number of boys who live to make it into manhood.
The race is not always won by the swiftest nor the contest by the strongest. But that's the way to bet.