Word: armsful
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The good news, relatively speaking, is that these loans are very concentrated: about 75% of all option ARMs were written in California, Florida, Arizona and Nevada, with the vast majority of those in California. In that way, the option-ARM problem is localized. People living in Phoenix, Las Vegas and...
The problem with option ARMs begins with the fact that people who took out these loans were given the chance to make ultra-low payments for the first few years - and many of them did exactly that. Borrowers, mostly middle- and upper-class with good credit scores, were allowed to...
Some people with option ARMs have already seen their payments spike, thanks to caps on negative amortization - that is, a loan balance that grows, instead of shrinks, over time. In its report, Amherst dissected one such loan, which was written in 2007 for $465,000 over 40 years. A minimum...
Furthermore, the Federal Government's big loan-modification effort - abbreviated as HAMP - does little to help such borrowers since in many cases lenders will recoup more by foreclosing (the test any loan modification must pass). A recent Bank of America Merrill Lynch study of loan modifications at IndyMac, which provided...
In a perverse way, option ARMs won't be as jarring to real estate because the system is numb to the pain. When problems first arose in subprime, homeowners and financiers alike were caught off guard. But since those early days of the real estate crisis, all sorts of loans...