The Adjustable Rate Mortgage Time Bomb Proves To Be A Dud

option arm

It was feared that adjustable rate mortgages (ARM) would slam U.S. homeowners in droves as low teaser interest rates adjusted-up.

Many intelligent analysts and investors showed us how waves of ARM’s would come due for scheduled adjustment, causing havoc to their owners.

Well, it turns out that many ARM holders either modified their loans ahead of time or were simply already driven into foreclosure before it even happened. Great… we think.


“The peaks of the reset wave are melting very quickly because the delinquency and foreclosure rates on these are loans are already very high,” says Sam Khater, senior economist at First American CoreLogic.

The majority of option ARMs are set to recast over the next two years. But the volume of outstanding loans has fallen sharply because many borrowers, prior to facing higher payments, received modifications, refinanced or defaulted. Option ARM volume peaked at 1.05 million active loans in March 2006. At the end of last year, there were 580,000 loans outstanding, according to First American CoreLogic.

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