Moody's: Option Arms show "Dismal Performance!"

The total count of Option ARMs outstanding are highly concentrated among a few states. California, having a large[er] number of troubled home(TARP) loans, would make you think that more distressed "homes for sale", will soon be in your local MLS. The upper priced homes in Chico will surly be in play ,if this trend hold any longer... Contact you realtor for "Good deals".

[The Option ARM] sector shows “dismal” performance, with more than 40% of borrowers 60 or more days past due on payments. And many of these loans have yet to experience a recast event, when initial minimum monthly payments jump as much as 60%, according to sources interviewed by HousingWire for an upcoming issue.

“Even though borrowers with Option ARM loans have the option to make monthly payments typically lower than the accruing interest on the loan, many borrowers are choosing a different option–not making any payment at all.”
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Negative equity is a key driver of weak performance — as well as a more predictive measure of default than unemployment — particularly among Option ARMs.
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Negative equity is a key driver of weak performance — as well as a more predictive measure of default than unemployment — particularly among Option ARMs.

“There is little hope that most of these [delinquent] borrowers will start making payments again if no principal is forgiven,” Moody’s said. “Forbearance does not eliminate the obligation to repay the loan principal, it only delays it. And many delinquent borrowers are potentially so far underwater that it would take close to a decade for them to attain any positive equity in their home.”

For their borrowers, modifications that lower the interest or extend the term, just delay the inevitable - and really makes the borrowers into renters.