Friday, September 18, 2009

The Next Mortage Crisis: Option ARMS

Now that the subprime loan debacle is pretty much behind us, the next threat on the horizon for the mortgage industry are Option-ARMs and Alt-A loans. Alt-A loans are loans made to people just above the sub-prime cutoff. Option-ARMs are loans that allow the borrow to choose from a variety of different payments each months, including payments that are less than the interest that has accrued during the previous month. As the graph here shows, a large wave of these loans are getting ready to reset (have their interest rate adjusted) in the next two years.

Reuters has a story about the Option-ARMs here.

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