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Next Up: Massive Option ARM Defaults

By Justin Gardner | Related entries in Bailouts, Housing

Liquidity Crisis 2.0 is right around the corner.

Nearly $750 billion of option adjustable-rate mortgages, or option ARMs, were issued from 2004 to 2007, according to Inside Mortgage Finance … Rising delinquencies are creating fresh challenges for companies such as Bank of America Corp., J.P. Morgan Chase & Co. and Wells Fargo & Co. that acquired troubled option-ARM lenders.

As of December, 28% of option ARMs were delinquent or in foreclosure, according to LPS Applied Analytics … An additional 7% involve properties that have already been taken back by the lenders. … Just over half of subprime loans were delinquent, in foreclosure, or related to bank-owned properties as of December. The nearly $750 billion of option ARMs issued from 2004 to 2007 compares with roughly $1.9 trillion each of subprime and jumbo mortgages in that period.

And here’s the scariest part…

Nearly 61% of option ARMs originated in 2007 will eventually default, according to a recent analysis by Goldman Sachs.

61% of $750 billion? What’s that math?

Oh yes, I’ve got it: this = really + bad

This entry was posted on Friday, January 30th, 2009 and is filed under Bailouts, Housing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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