Business

Next Up: Massive Option ARM Defaults

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Liquidity Crisis 2.0 is right around the corner.

From WSJ:

Nearly $750 billion of option adjustable-rate mortgages, or option ARMs, were issued from 2004 to 2007, according to Inside Mortgage Finance … Rising delinquencies are creating fresh challenges for companies such as Bank of America Corp., J.P. Morgan Chase & Co. and Wells Fargo & Co. that acquired troubled option-ARM lenders.

As of December, 28% of option ARMs were delinquent or in foreclosure, according to LPS Applied Analytics … An additional 7% involve properties that have already been taken back by the lenders. … Just over half of subprime loans were delinquent, in foreclosure, or related to bank-owned properties as of December. The nearly $750 billion of option ARMs issued from 2004 to 2007 compares with roughly $1.9 trillion each of subprime and jumbo mortgages in that period.

And here’s the scariest part…

Nearly 61% of option ARMs originated in 2007 will eventually default, according to a recent analysis by Goldman Sachs.

61% of $750 billion? What’s that math?

Oh yes, I’ve got it: this = really + bad