Wall Street Journal (08/06/08) P. A2; Simon, Ruth
Payment option mortgages could become the next big problem for the mortgage industry, as lenders of the option adjustable-rate mortgages (ARMs) could face a surge in defaults as the loans recast. Option ARMs were made mostly to people with good credit, and those who opted to make a minimum payment on the loans could see their monthly payments increase by 60 percent when they begin to make full payments. Barclays Capital estimates that 45 percent of option ARMs originated in 2006 and 2007 could end up in default, and UBS believes that defaults on loans originated in 2006 could reach 48 percent. FirstFed Financial posted a loss of nearly $70 million in the first quarter, and the number of foreclosed homes held by the Los Angeles bank doubled in the second quarter.
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