Option ARMs Crisis on the Way
The Options ARM offers 4 payment options: Minimum Monthly Payment, Interest-Only Payment, Fully Amortizing 30-Year Payment and Fully Amortizing 15-Year Payment. It allows borrowers to make a low monthly minimum payment for 5 years and then the loan is recast which causes mortgage payment to increase.
Now billions of Option ARMs are due for recast in 2009 and 2010. What does it mean in the current situation of the subprime crisis? It means another, even more serious crisis may strike. The great fall in the US housing market is going to make the matters worse.
When the low rates on Option ARM products expire, homeowners will find themselves owing much more than their homes are worth. It is likely to trigger a big wave of foreclosures across the country. Experts believe payments may go from $1,000 a month to $1,800 a month.