Will Option ARMs Be the Next Big Crisis? Hell, Yes!
We told you about the “Option ARM Crisis” in a blog post of ours on 12/31/08. This data has been floating around since mid-2008 when it was first compiled by Credit Suisse.
This is going to put another nail into the coffin of housing recovery. I FIRMLY BELIEVE we will not see a housing turnaround until summer of 2011 or spring of 2012 at the earliest. That is how bad it is. As you can read from the WSJ article below, investment banks are estimating defaults in the 60% range. THAT IS HUGE and will stop the already dead housing market in its tracks. This second wave of defaults is going to crumble a banking system that is already on its last legs. So, I ask again. How can you, the investor benefit? For those of us that have the capital to buy properties, this is a BONANZA! You will practically have unlimited choosing of which properties you want to buy. And you will be able to buy it at a HUGE discount to market value. Call us to get started! This is a once in a CENTURY opportunity.
Option adjustable-rate mortgages, better known as option ARMS, are becoming a serious problem for banks – a problem that analysts say could ultimately rival the issues surrounding subprime loans. Both Bank of America and Wells Fargo announced this week that they were anticipating higher than previously expected losses from option ARM products
Option ARMs give borrowers the ability to pay less than the monthly interest due. As a result, with home prices falling, more than 55 percent of borrowers with option ARMs are underwater, according to J.P. Morgan Securities Inc.
As of December, 28 percent of option ARMs were delinquent or in foreclosure, according to LPS Applied Analytics, a firm that analyzes mortgage data. Lenders have already foreclosed on 7 percent of option ARM properties.
Goldman Sachs calculates that nearly 61 percent of option ARMs originated in 2007 will default. And more than 50 percent of all option ARMs outstanding will default.
Source: The Wall Street Journal, Ruth Simon (01/30/2009)
Rich and Karen Ayers are licensed Real Estate Brokers in Illinois. We are experienced Brokers who specialize in Residential and Investment real estate in Naperville, Oswego, Plainfield and the surrounding suburbs of Chicago. We also own and manage multiple investment properties and help real estate investors find, buy, fix, rent and sell their investments. Visit our website at www.AyersTeam.com or receive our blog via your RSS Feed or in your email.
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