Lets break down the numbers. The subprime buyer has bought a home that cost $183,917 using a 30 year fixed mortgage not including any taxes or insurance their monthly payment would be $1,408.95. If the home was written with an adjustable rate which most were their initial payments would be $1,353.37. They would pay $1,454.76 when the interest rate changed to 8.81%. Then there are those that chose an interest only loan they would pay $1,230.71 as an initial payment per month. Once the interest only period ended they would pay the higher $1,454.76. It is important to note that these people would not have paid anything to the principle. Many of these people bought more home than they could afford especially with the changes. If they bought a $250,000 dollar home at the same rates the initial payment would be $1672.92 using the interest only loan. When the loan converted to a conventional ARM it would be $1,977.47. Housing prices dropped 5.3% this year and 2.7% last year and the year before that it had dropped 1.7%. So those that chose an ARM or an interest only have a home that is now worth $166,585.89 if they bought it in 2006. Since they owe more than the house is worth and there is a prepayment penalty for two thirds of such home owners they really can’t refinance their loan.