Does anyone ever manage to pay off a subprime mortgage?

Especially considering that most of them seem to be ARMs? These things were supposedly a big reason for the housing bubble, and people defaulting on them seems to be a big reason why it burst.
I suppose if you won the lottery or inherited a big chunk of money you could pay it off. But from what I’ve seen the terms seem so stacked against the borrower, it boggles the mind.

Yes, ARMs are usually repaid by refinancing when their credit rating improves.

Refinance happens.

We were able to refi our ARM to a 4.3% or so fixed traditional 30-year loan just about a year ago.

Now, the house is worth less than half of what we owe, but that’s an entirely different issue.

Even in the worst categories of mortgages, defaults are only 6-10%. That means that 90% of people are either keeping up with payments or successfully refinancing.

The reason it’s such a problem is that 10% failure rate on a mortgage is painful. It might take a homeowner 10-12 years just to pay the bank an amount of money equal to the original mortgage value. So even if 90% of people pay their mortgages, the other 10% mean the bank loses money on that entire class of mortgage. They then have to adjust their financial statements to show the expected losses and reduce the value of their assets…

No. The bank isn’t SOL on 10% of what it’s lent out. It gets the house, keeps the equity and down payment, and only loses the difference between what it now has and what it was owed. The loss on the sum of its loans ends up being much, much smaller than 10%. Small enough that a year’s interest payments easily take care of it. It’s our system that’s broken that something like this brings it all the way to its knees.