Option-ARMS are the next elephant in the room that will be getting lots of press soon.
This “creative” financing scheme was once limited to higher net worth, primariliy independent business owners and consultants who had high seasonality in their incomes. It morphed during the bubble years as a widespread financing option.
They have an interesting features, if you continue to choose the lower payment option and your mortgage balance reaches a preset limit (say 5% larger than your original balance) your ARM resets early. Who reads all the fine print in these exotic mortgages and really understands them?
I bet a large # of those folks have negative equity, they will be walking away in droves.
By the way, on the ARM reset chart, what is the typical lag between ARM reset and eventual foreclosure? 6 months? By shifting this graph to the right you see that the peak of the foreclosure tidal wave is still ahead.
