The Bankwatch

Tracking the consumer evolution of financial services

Option ARM – $98 pm on a $315K mortgage … for now

The last time saw a graphic such as this was 2007, when the schedule for mortgage resets on US sub prime mortgages pointed to an inevitable crash beginning end of 2007 and through early 2008.

Well here is the next picture that is eerily similar with forward predictions of similar catastrophe in 2011.   The US option ARM.  Apparently these are not necessarily sub-prime at least right now.  The real danger exists in the event that interest rates increase meaningfully to co-incide with the reset dates.

Also we must look at this in the context of the Banks rushing to repay government TARP / SCAP money.  It is quite possible the reverse will be happening with some banks in trouble again in 2011.

Option ARMs: Paying $98 a month on a $350 Thousand Mortgage | Calculated Risk

About 1 million option ARMs are estimated to reset higher in the next four years, according to real estate data firm First American CoreLogic of Santa Ana, California. About three quarters of those loans will adjust next year and in 2011, with the peak coming in August 2011 when about 54,000 loans recast, the data show.

“The option ARM recasts will drive up the foreclosure supply, undermining the recovery in the housing market,” [Susan Wachter, a professor of real estate finance at the University of Pennsylvania’s Wharton School in Philadelphia] said in an interview. “The option ARMs will be part of the reason that the path to recovery will be long and slow.”


Written by Colin Henderson

June 11, 2009 at 15:17

Posted in subprime, US

Tagged with , , , ,

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