For the past 3 years, we've heard about mortgage defaults and lots of people talking about the "subprime loan crisis" but Option ARM mortgage defaults will shortly become the unfortunate talk of the town. Option Adjustable Rate Mortgages are mortgages that reset after a specific time to a capped mortgage rate and they adjust with market pricing.
Watch the video to get a better insight into these and similiar loans.
Now if you watched the video, you'll get a sense of doomsday. Others that I've talked to about the next wave of mortgage defaults and foreclosures say the government will solve the "problem" by mandating massive loan modifications and just buying more banks.
Let's take a look at some information first before we say the government can solve the problem.
If you look closely, you'll see that the subprime mortgage crisis is "behind us", although we're still feeling the pinch from this because many of those borrowers have their homes on the market as a short sale or have already foreclosed. However, looking forward, you'll notice a gigantic increase beginning halfway through 2009 and through 2011, that Option ARM loans and Alt A loans will see their resets begin to occur. This means those homes (many are already behind on their mortgages) will see an increase of their mortgage payments (that they can't afford now).
The amount of these loans that were written are astounding as well. Option ARM's make up nearly 18% of every mortgage in America (that's nearly 2 out of every 10 household). If that doesn't make you scratch your head and say, "Hmm", you're either brain dead, simply really don't understand (call me), or you don't care. And to get to the point of the title of this article, while I don't have statistical data as of yet, it's a very well-known fact that "a ton" of these types of loans were written here on Long Island. That's where a lot of people, made a lot of money.
When you think about 50% of these loans being unable to be paid, that's alot of loans in default. And to touch on the point about the government "saving the 'victimized' people from losing their homes", who's to say that after the government "saves" them, that they'll continue to pay the mortgage or maybe people who are paying their mortgage will scratch their head and say, "Why am I paying my mortgage...
10 Comments on Option ARM Mortgage Defaults Hitting Long Island In 2009
MAR
15
2009
Option ARMs being sold to regular homeowners was one of the biggest travesties of the past decade. They were a specialized niche, and few people understood the negative amortization factor. They were designed to be short term investor loans for the very savvy, not Joe Sixpack.
We had a large company advertising the Option ARMs to owner occupants for a long time. J Philip is absolutely right. This is going to be bad when they all recast and no one can make the payments. I don't know what can be done for these people?
What are your thoughts about loan mods and gov't bail outs for homeowners?
I mean, how realistic are they? The interventions last year fell flat on their face. And this is a whole other situation with regard to these people being completely upside down on their value.
I still have a problem with a majority of the folks who now claim that they did not understand these loans.....the problem is or was that after they heard they they can get $xxxx in a cash out refi they didn't hear anything else...
As J. Philips and Terry have already stated these loans have/had nothing but trouble written all over them.
Thomas, the oddity about positioning is that there's backlash behind it- except, it's a reality that has to be addressed, and is a huge part of the market. To ignore it leaves vacant houses in existing neighborhoods- no benefit to anyone.
I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
;)
;)
Option ARMs being sold to regular homeowners was one of the biggest travesties of the past decade. They were a specialized niche, and few people understood the negative amortization factor. They were designed to be short term investor loans for the very savvy, not Joe Sixpack.