I was reading an interesting article this weekend over at Slate.com discussing the next wave of housing foreclosures that will likely involve prime borrows vs. sub-prime borrows.   The one paragraph that really caught my eye is below:

Consider, too, that, yes, going through a foreclosure kills your credit rating and makes it a lot harder to buy a new house—but as more and more prime borrowers go into foreclosure, it’s perfectly possible that buying a new home a year later will in the near future be as routine and unsurprising as the once inconceivable idea that you can get a whole batch of new credit cards two years after a bankruptcy.

If millions of people are foreclosed on, there is an essential loss of millions of home “consumers” and the only way to get them to consume that inventory would be to re-issue credit to them.   So walking away from a home isn’t such a bad idea as everyone suggests as this is ultimately the way to “short” your house just like you would short stocks that you think are going to go down in value.

The other intriguing piece of information from the article,

Just two banks, Washington Mutual and Countrywide, wrote more than $300 billion worth of option ARMs in the three years from 2005 to 2007, concentrated in California.

Just two banks in one region wrote $300 billion and prime borrows may start walking away makes my spine chill because many of the assumptions about the foreclosure debacle is that only sub-prime borrowers would default.  What if prime borrowers start defaulting?  We’re looking at 2+ trillion dollars in losses!