LOOK OUT!! there's an Option Arm headed towards you ~~~`

I am not sure selling is an option. I had a client of mine, who got a terrific deal at that time, but now he can't sell for what he has to walk away.

At least in Florida with serious decline in value, this is problematic

Lewis, great advice. All homeowners should be reviewing their situations even if the weren't in one of those mortgage products. This particular round is going to make the last one look like a nice walk in the park. Be prepared to see ugly get down right abysmal!

Hand on and Stay sharp!

Bo

Lewis, one good thing coming out of this is that Wachovia is waiving the prepayment penalties on these loans. I agree, get out of them as quickly as possible.

Lewis - High quality mortgage advice is a must!  I'm with you, those folks with those 'savvy products' should get out of them as quick as feasible.  Overall, having solid mortgage counseling will be crucial going forward... always has been and always will be.

Wow,  that graph is pretty scary.  It looks like the subprime in reaching a bottom but these Option ARMS are just getting started.  Don't tell me it's going to take until 2012 to work out of this mess.

Lewis - It's unfortunate for many of these borrowers if their loan officer did not fully explain all the options of this loan program. Certainly many borrowers were lured by the 1% start payment, but should have been made aware of the possibility for negative amortization.

I'm sure that those borrowers who are now facing a recast wish they had been making the interest only payment at the very least. But before we panic, keep in mind that the indexes that most of these loans are tied to is currently trading at 2.855% for the MTA, and 3.285% for the 1 year Libor. I would guess that many of these loans have margins of 3% or less, meaning that the fully indexed rate is 5.85 - 6.285%, competitive with today's fixed loan rate.

I am not defending these loans, or the loan officers who may have marketed them to unwitting consumers, but borrowers should take advantage of the indexed rate and start paying the interest only or fully amortized payment immediately. After all, if they were able to refinance to a fixed rate loan, they would be making this payment anyway.

Lewis,

I love my option arm, but then I reinvested the savings.  Just curious, do you really believe that everyone who has an option arm should get out of it immediately?

Lewis,

Another great post mister, and very timely. We have been soooooooo lucky rates have stayed low or many more deals would be force re-casting by now, indeed I'd love to see some statistics on how many have been recast (info note- most, or all, option arm loans are designed to recalculate the minimum monthly payment once the interest added on exceeds a certain amount. That process is commonly referred to as a forced re-cast, and would substantially increase the monthly payment).

Ron- so few have been as responsible as you, and that's why we should all be worried. I agree with Lewis. There is still quite a bit of option arm pain coming our way.

Gerry Suarez, Jr.

YourHUD Loan Pro!

Gerry, I can definitely agree with that, but then I would put a negative on the borrower, not the actual product.  I have 100's of stories with this loan that got people into properties years ago and are doing fine as well as many that used the loan to buy other properties or enhance their businesses.

Well, I guess you can't fight statistics.  Give it a year and everyone with a 97% FHA loan in a declining market will be running away as well.