Option-ARM Borrowers Facing Resets
About 93 percent of option-ARM buyers chose to pay a minimum amount less than the interest due, according to a report released last week by Standard & Poors. That means that nearly all of the 350,000 option-ARM borrowers now owe more than they owed when they first purchased their homes.
Many of these loans were written in 2004 and are close to their five-year reset when the loans convert to a standard amortization. Some more recent loans will reset early if the accumulated interest has pushed the loan-to-value ratio above 110 percent.
In one example outlined in the S&P report, the payment on a $400,000 mortgage goes from $1,287 to $2,593.
The authors of the report say that many ARM borrowers aren't good candidates for refinancing or modification because their loan-to-value ratios are too high for the government's Making Home Affordable program. Also, about 80 percent of option-ARM loans were stated-income loans and borrowers could be held legally liable for deliberate inaccuracies on their original applications.
Source: CNNMoney.com, Les Christie (11/26/2009)
Option-ARM Borrowers Facing Resets
3 comments • Angie Stephens - Collin County TX Specialist • December 02 2009 12:24PM
Angie, Loks like we are headed for a who bunch more foreclosed properties.
I hope not. Time will tell. I'm taking a class on Short Sales and Foreclosures (a certification class!) out in Waxahatchie on Friday. They offered it for $10 so I booked it. I am not sure how quickly, but that 150-class filled up. Well worth the drive, considering the MetroTex classes for SS/F are full for months.
I'll blog about it afterwards!
Although the article states that there are quite a few disadvantages to Option ARM borrowing, I still think that there are quite a few benefits. The following article does a good job of explaining that there are actual benefits and advantages that exist with this type of mortgage program.
http://www.bankapedia.com/mortgage-encyclopedia/faqs/674-advantages-to-the-option-arm