The trap has sprung. That sums it up.

The slimiest of the slimy, mortgage brokers, conned so many financially unsophisticated folks into these no-down, no-doc, negative-am, teaser-rate blah blah loans over the past couple of years. Yes, the sucker (I mean loan holder) is responsible for their own mistake in the end. And I understand why many of them made it:

Free money!
Lower your house payment 50%!
Pay off all your debt!

Well, there is no such thing as free money, their payments will end up being more than they were paying once the loans reset, and they didn't really pay off their debt, they just moved it from lender A to lender B.

The trap has sprung. America, get ready for the Greatest Depression. Never before have so many used so much leverage to bubble up an asset than the Late Great Housing Bubble of 2000 - 2006. Leverage on the way down is sickening, as we'll all now see.

From BusinessWeek:

For cash-strapped homeowners, it was a pitch they couldn't refuse: Refinance your mortgage at a bargain rate and cut your payments in half. New home buyers, stretching to afford something in a super-heated market, didn't even need to produce docuмentation, much less a downpayment.

Those who took the bait are in for a nasty surprise. While many Americans have started to worry about falling home prices, borrowers who jumped into so-called option ARM loans have another, more urgent problem: payments that are about to skyrocket

The option adjustable rate mortgage (ARM) might be the riskiest and most complicated home loan product ever created. With its temptingly low minimum payments, the option ARM brought a whole new group of buyers into the housing market, extending the boom longer than it could have otherwise lasted, especially in the hottest markets. Suddenly, almost anyone could afford a home -- or so they thought.

The most diligent home buyers asked enough questions to know that option ARMs can be fraught with risk. But others, caught up in real estate mania, ignored or failed to appreciate the risk.

The option ARM is "like the neutron bomb," says George McCarthy, a housing economist at New York's Ford Foundation. "It's going to kill all the people but leave the houses standing."