Coming mortgage pain

Calculated Risk

This chart shows the expected payment shock coming in 2010 and 2011 from Option ARMs. This chart includes projected increases in LIBOR (if LIBOR stays low, the shock will not be as high), and the recast due to reamortizing the loan over the remaining period.

Subprime mortgages were the bulk of the first wave from 1/1/2006 – 5/1/2009. But a giant spike in Option ARM pain is starting now. These mortgages start at low rates, and you have the option to pay from a menu of amounts each month. Most people, obviously, pay the smallest amount. But once the mortgage hits a trigger amount owed, it resets to a much level payment level and never goes back. Increases of 30-40% a month in mortgage payments are not uncommon. There looks to be a lot of that coming, soon too.

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