With billions of Option ARMs due for recast in 2009 and 2010 another crisis is on the making. But this time problems are expected to be more pronounced than the subprime crisis since the economy is already nearing its trough, the consumer confidence has slumped to an all time recent history low and financial markets are in a gridlock. Making the matters worse is the unrelenting fall in the US housing market which is showing no signs of stabilization.
Option ARMs are mortgages with low teaser rates that can explode into huge balloon payments. You have the “option” of paying several different ways and amounts. Not surprisingly, most pay the absolute minimum – which means the balloon payments can come much faster and be even more expensive. One estimate is the average increase for such mortgage payments will be a whopping 63% once they reset to the higher level. And once they reset, they never go back down.
Evil, aren’t they?