jtara - 2:18 pm on Aug 13, 2007 (gmt 0)

I don't see why the US lenders don't just work with the mortgagee. Its better to have some profit

There's no profit to be made by "working things out with the mortgagee". The profit was supposed to come when the rates stepped-up. They lose money on the front-end of the loan.

The borrowers couldn't afford the houses in the first place - they were only able to afford them with a loan that was subsidized in the front end. They were assuming that property values would continue to rise rapidly, and they would either flip or refinance (with another ARM) when their loans adjusted.

Then the music stopped.