If WaMu keeps recording $200 mil/quarter of unearned option ARM income, by the end of 2006 they would have close to $1 bil of neg-am income, and I wonder if that entire amount has a chance to disappear. Just think how likely it is that an optionARM borrower will make the payment on the unpaid interest after their loan resets to a higher rate. If the ARM resets go as we think, many of those borrowers will give their keys back to the bank, and then there goes a big chunk of WaMu’s past recorded income, and future income stream, plus the bad loans they have to record on top of it. One thing’s for sure, WaMu’s share price has stayed steady for 2 years, so the risk of losses is not yet priced into the stock.
Bugs and SDAppraiser, when you see NODs, which lenders are the main ones? The article listed the top 10 subprime lenders in the US, with Wells Fargo at the top and WaMu last.
