” Personally, I think it is being overblown. The Option ARMS are certainly toast, but the other varieties … remains to be seen. The Option ARMS are certainly toast, but the other varieties … remains to be seen.”
I agree the other varieties won’t have the same degree of problems, but I think size of the Option ARMS alone are big enough to wreak havoc on the market and this looks like it has its barrel pointed at California. Here is a post from Dr Housing Bubble in June explaining the data
“-$500 Billion in total Pay Option ARMs outstanding in the U.S.
-60 Percent of these issued to folks in California”
““(Businessweek 2006)Now the signs of excess are crystal clear. Up to 80% of all option ARM borrowers make only the minimum payment each month, according to Fitch Ratings. The rest of the money gets added to the balance of the mortgage, a situation known as negative amortization. And once balances grow to a certain amount, the loans automatically reset at far higher payments. Most of these borrowers aren’t paying down their loans; they’re underpaying them up.”
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I don’t think this is overblown, I think this is the nail in the coffin for the higher end markets. All the preliminary data is pointing in that direction.
