A new white paper from Deutsche Bank researchers, and published in the latest First American LoanPerformance MarketPulse report, shows just how painful underwriting at the fully-indexed rate will be for many subprime borrowers. More importantly, it underscores just how painful things are about to become for a swath of borrowers facing payment resets this quarter and throughout 2008. The study found that weighted debt-to-income ratios shifted from a reported 42 percent among subprime ARM borrowers to a wallet-straining 52 percent, were DTI actually calculated at the fully-indexed rate. The below graph should illustrate the dramatic shift towards market reality: DTI Transition Matrix in graph form The conclusion here is pretty stark: we've got a good number of borrowers who are going to see their mortgages reach levels they simply can't afford, and thanks to more conservative underwriting many of these borrowers won't be able to get out of the mess they're finding themselves in.