Just to give two examples, Orange County is subprime central, but as the subprimes go out of business, it not only hurts OC (e.g. loss of jobs), but the rest of the country, because it removes a significant pool of buyers. Less buyers = less demand = lower prices for a given supply
Second, non-traditional mortgages are widespread outside of CA; for example, [link|http://money.cnn.com/2007/03/01/magazines/fortune/nar.fortune/|here David Lereah] claims that Atlanta had 40% I/O loans in 2005. Unless those Atlanta homeowners can handle a significant increase in mortgage payments, Atlanta will be hurting too.
--Tony