We've talked here about it, now it's starting to hit the mainstream.

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'The Option ARM default rate is likely to make subprime look like a walk in the park', warned Rick Sharga , senior vice president for RealtyTrac, a foreclosure research firm in Irvine, Calif.

WASHINGTON — Call it son of subprime. Experts warn that a new wave of mortgage foreclosures may be coming soon and could rival the default rates for subprime mortgages and slow efforts to find bottom in a prolonged national housing slump.
The mortgages in question are $230 billion of option adjustable-rate mortgages, creative lending products that flourished at the height of the housing boom. In an option ARM, a borrower can opt to pay less than his or her monthly balance due, and the difference is tacked onto the outstanding loan balance.
Many experts had expected an explosion of defaults in the springtime on these roughly 564,000 outstanding mortgages. However, interest rates dropped to historic lows, and that delayed the detonation of what many housing analysts still see as a ticking time bomb.

http://news.yahoo.com/s/mcclatchy/20090618/pl_mcclatchy/3255357

purch

We need an out of date Graph to give this story any credibility !!!

mr_fishbulb

purch wrote: »

We need an out of date Graph to give this story any credibility !!!

How's this?

System

Slightly more up to date than the one we normally see for Option ARM.

1984ReturnsForReal_2

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Still, regardless about what you believe regarding graphs, this is a fact that will cause trouble in the short/medium term, the question is how much. This is in stark contrast to the stuff we have been reading in the media over here, where they and the government are trying to polish and maybe even get a mirror finish............. on a turd.

mbga9pgf

purch wrote: »

We need an out of date Graph to give this story any credibility !!!

Thats right purch, bury that head deep in the sand!




Read this from last week. This issue is alive and real.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aQ_ZgC75Zfyw

kennyboy66_2

So lets get this right.

There have been 1 million foreclosures between March and May 2009 (just 3 months).

This article claims that there are 564,000 "Option ARM" mortgages outstanding and these will be reset over the next 3 years. At a rough estimate that looks like if every one of these mortgages defaulted it would add an average about 16000 foreclosures per month.

So this would increase the foreclosure rate we have seen over the last 3 months by a full 5%.

Doesn't look like much of a story to me - am I missing something ?

mbga9pgf

kennyboy66 wrote: »

So lets get this right.

There have been 1 million foreclosures between March and May 2009 (just 3 months).

This article claims that there are 564,000 "Option ARM" mortgages outstanding and these will be reset over the next 3 years. At a rough estimate that looks like if every one of these mortgages defaulted it would add an average about 16000 foreclosures per month.

So this would increase the foreclosure rate we have seen over the last 3 months by a full 5%.

Doesn't look like much of a story to me - am I missing something ?

The loans were bigger. Much bigger than subprime. The losses for the banks will be significant.

Its also the secondary effect on the economy. For example, the woman featured in the above bloomberg article was facing a mortgage rise of around 3500 dollars PER MONTH.... that is a lot of cash for the economy to lose, especially as these loans featured heavily in concentrated ares - Nevada, Florida and California being the top 3.

The reason for pointing out Option ARM was not suggest the end of the world was nigh; it was to point out that the financial crisis is far, far from over to those who were convinced we were seeing a strong recovery.

themanbearpig

kennyboy66 wrote: »

So lets get this right.


This article claims that there are 564,000 "Option ARM" mortgages outstanding and these will be reset over the next 3 years. At a rough estimate that looks like if every one of these mortgages defaulted it would add an average about 16000 foreclosures per month.

Outstanding option ARM loans in the U.S. total about $500 billion.

purch

Thats right purch, bury that head deep in the sand!

You really need to lighten up !!!

Yes it's serious, and will affect us all, but unless you can think of something you or I could do that will have a major affect on the U.S. Mortgage market, other than getting yourself into a huge 'tiswas' everytime it's mentioned (which in case you are wondering, will NOT have any effect whatsoever on the problem), then there is basically s*d all we can do about it.