Option ARMs are the next leg of the housing crisis

Thought the housing problem was just isolated to the subprime market? Think again. It's not spreading to the option ARM market.

BusinessWeek says that option ARMs are the next peg to fall in the housing crisis.

 

" The Mortgage Bankers Assn. said on June 5 that the option ARM problem is growing. The group reported that the national rate of foreclosure starts for prime ARMs, including option ARMs, increased to 1.55% in the first quarter, up from 0.53% a year earlier. In California the foreclosure start rate in the first quarter was 2%, vs. 0.5% a year earlier. In Florida, the rate was 2.57%, compared with 0.5% in the first quarter of 2007. "California, Florida, Arizona and Nevada combined…represent 62% of all foreclosures started on prime ARM loans, and 84% of the increase in prime ARM foreclosures," the group said.

The option ARM loan defaults could accelerate next year even if subprime defaults subside, said Chandrajit Bhattacharya, vice-president and mortgage strategist at Credit Suisse Securities. He said California will see the bulk of the option ARM foreclosures and the rest will be spread out across the country."

 

Tens of thousands of consumers with decent credit got in over their head with real estate and the bill is coming due over the next couple of years. 

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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Comments

  • New York is Next

    June 11, 2008

    Yes, we are just moving from the second inning to the third inning right now. This has a long way to go before everything gets sorted out. The Fed created a housing frenzy out of the 2001 recession and this is going to look more like a depression.

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