Wave of option adjustable rate mortgage deafults to come
A second, huge wave of mortgage defaults is set to follow behind the first wave of sub-prime defaults as homeowners start to walk away from Alt-A and Option ARM loans.
Source:
Credit Suisse (via
Bruce Henderson)
Bruce Henderson's commentary notes:
"What this shows is that the first rate resets for the Subprime loans has mostly passed. So people who were going to default on rate payment shock have largely had their day of doom. If you look at 2009 - 2011, you see that there are 2 more flavors left to sour: Alt-A and Option ARM. These magic bundles of toxic waste are even nastier than subprime.
Alt-A were commonly jumbo loans for your $1 million and up McMansions, frequently purchased with little or no money down using low teaser rate loans. Option ARMs were loans where the borrower could pay less than minimum payment, yes that’s right! Their loans were growing larger month over month."