An estimated one million option arms are expected to reset higher over the next four years, according to a Bloomberg report.
About three quarters of these loans will adjust next year and in 2011, with resets peaking in August 2011 when 54,000 loans are set to lose their negative amortization feature.
More than $750 billion in option arms were originated between 2004 and 2008, with hard-hit California accounting for roughly 58 percent of them.
One borrower cited in the Bloomberg report received one of the most toxic option arms I’ve never heard of, with a start rate of just 0.375 percent and a negative amortization ceiling of 145 percent.
That particular borrower will experience massive payment shock, with the monthly mortgage payment rising to $3,500 from just $98.
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