Tuesday, 22 September 2009

"Option" Morgages Set to Explode

The mortgages differ from other ARMs by offering an option to pay only the interest each month or a low minimum payment that leads to a rising balance in the loan's principal.

When the balance of the loan reaches a certain level or the mortgage hits a specific date, the borrower must begin making full payments to cover the new amount. The loan's interest rate also may have been fixed at a low level for the first few years with a so-called teaser rate, but then reset to a higher level.

Because the new monthly payments can be five or 10 times what borrowers are accustomed to paying, they "threaten a much greater hit to the consumer than the subprimes," Goddard said, referring to the mortgages often extended to less credit-worthy borrowers that fed the first wave of the financial crisis.

http://www.reuters.com/article/wtUSInvestingNews/idUSTRE58G5U320090917

A lot of these mortgages have already failed. The situation is set to get a lot worse !

[Posted at the SpookyWeather blog, September 22nd, 2009.]

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