Worse Than Subprime? Other Mortgages Are Imploding Slowly

Detroit Free Press  
June 21, 2009
Hall, Kevin

With $230 billion in option adjustable-rate mortgages (ARMs) poised to undergo rate resets between 2009 and 2012, there are concerns that a wave of foreclosures is on the horizon that could be worse than the subprime mortgage crisis. Option ARMs typically reset after a certain period of time or outstanding debt hits a certain point above the loan's value, and experts note that many borrowers saw the pain delayed by a decline in interest rates earlier this year. Given that most option ARMs were written in Florida, California, Nevada, and other hard-hit housing markets, experts say borrowers already owe 30 percent to 40 percent more than what their homes presently are worth. These borrowers are unable to participate in the Obama administration's mortgage relief programs; and experts note that since their interest rates already are low, these borrowers would benefit most from lenders forgiving a portion of the loan balance. "They're probably going to default at a rate that makes subprime look like a walk in the park," speculates RealtyTrac Senior Vice President Rick Sharga. "They're going to have a loan they cannot afford on a house that's probably way underwater and not have a lot of good options on how to avoid foreclosure proceedings." 

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