Tag Archives: option arm
Fantastic data about Option ARMs recasting in the future
As a San Jose Short Sale Agent, I am a firm believer that the second wave of foreclosures will be triggered by multi billion dollars worth of Option ARMs recasting in the next few years. The problem has been brewing quietly and is the big secret in the industry today. It is the pink elephant that no one has been speaking about, but with the passing of time, it continues to grow and becomes too difficult to ignore. The above article actually put numbers behind the problem that the country and affected homeowners will be facing in the coming years. Make no mistake about this, option ARM will be a huge problem affecting the mortgage market and the subsequent impact it will have on foreclosures. Homeowners who own these types of loans will have a huge wake-up call in the coming months and years.
Economists says foreclosure situation seems to be better….. are they?
So which group of economists is correct, are foreclosures truly decreasing or are they going to be increasing? Depends on the data, I say. As a San Jose Short Sale agent, what concerns me are the two items mentioned in the article. First, I think everyone will agree that unemployment will be a driving force behind foreclosures in California. Unless we can find jobs for California’s 12% unemployed, even with loan modifications, it’s just a matter of time before these folks will face foreclosure. The mortgage modifications for most people will simply delay the inevitable by a few more months, unfortunately.
Secondly, there is the issue of the wave of re-setting adjustable mortgages which are scheduled for the next couple of years, chief among them the deadly Option ARMs. Once these start to re-set (and California has the most Options ARMs of all other states), in conjunction with high unemployment rates, we are going to see some serious carnage. I hate to sound so pessimistic, but those are the fact that I see driving foreclosure activity in the coming few years.
Option ARM – the new Sub-Prime disaster.
This is the ridiculous mortgage that people were offered during the crazy heydays of “anyone can get a mortgage” era of a few years back. Simply put, several payments options were given to the borrower, but the one that was selected most often was the low teaser rate option to pay less than the interest payments and have the deficiency tacked on the end mortgage; hence, the principal actually increases with time, rather than decrease! This was also referred to as the negative equity loan: your equity was actually decreasing rather than increasing. This was the Option Adjustable Rate Mortgage (ARM).
This was a pure gamble! You were gambling that the housing prices would continue to increase and you would be able to re-finance your way out of the negative equity situation some time in the future. Naturally, during 2006 or 2007, everyone was so drunk on the prospect of instant wealth, most of the borrowers who were presented this option took it, so they could buy a little more house than they would otherwise be able to afford. Unfortunately, the gamble did not pay off.
Throw 12% unemployment into the equation in California and see if this will not present itself as a serious crisis coming down the line. As a San Jose Short Sale Agent and every Certified Short Sale Agent worth his/her designation knows that the re-setting of these option ARMs will be the next wave of foreclosures.
