Recovery Hits Another Speed Bump with Option ARMs
by Tyler on 08/28/09
Option ARMs that were issued between 2004 and 2007 accumulated $750 billion in mortgages. 50% are already in default. The payments have doubled for those borrowers because of the option ARMs being reset.
The option ARMs are a much larger concern than the subprime defaults. Theses defaults have gone up 400% as opposed to the subprime defaults increasing 200%. Nobody noticed these overall numbers because of the news focusing on the subprime meltdown. Most of the borrowers will face the increase in payments 5 years from when they acquired the loans. There are about 600,000 people who are still paying interest only.
Barclays Capital estimates that the banks will lose $12 billion on option ARMs. So for those thinking that we are well on our way to recovery, sorry. The numbers do not lie.
