State magistrates met last week to discuss strategies for combatting mortgage fraud and the topic of payment option ARMs was a central theme.
In Arizona – one of the states hardest hit by the mortgage crisis – 128,000 option ARMs will reset in the next year, State Attorney General Terry Goddard told Reuters. The San Francisco-based mortgage consultant Loan Performance has estimated that 469,000 option ARMs were issued in the U.S. between 2000 and 2007, when most lenders halted the practice.
That means hundreds of thousands of borrowers will be on the hook for payments of 5 to 10 times more than the usual mortgage payment, obligations that will “threaten a much greater hit to the consumer than the subprimes,” Goddard said.
One researcher’s work shows how bad the option ARM effect could be on the economy. Joseph Mason, a banking professor at Louisiana State University, estimates that 75 percent of option ARM holders made minimum payments for as many as five years, failing to refinance or buy down principal balances.
“The only ones left in the product now are those who couldn’t afford something else when they got the loan,” Mr. Mason told the New York Times. “Now all they can likely afford is the minimum payment, so they’re just buying time in a dwelling until their reset date.”
This is especially going to hit homeowners in Prescott Valley which already leads the County in foreclosures.
See the complete text of the Reuters article.
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