Option ARM is the New Subprime
By Chip Parker, Jacksonville Consumer Attorney on Nov 13, 2009 in Featured, Foreclosure News
As a Florida foreclosure defense attorney, I am a little annoyed with media reports that “we seem to be pulling out of this foreclosure crisis” because this month has fewer foreclosures than last month.
Before 2005, only Wall Street knew what a “subprime” mortgage was, but by 2007, Main Street learned about this domestic terrorist plot by a handful of financiers to steal billions and billions of investor money and to destroy home ownership for the Middle Class. Thank God THAT’S over . . .
Er . . . well, it’s not quite over. Not by a long shot. You see, at the absolute height of the real estate frenzy in the epicenter of the boom, mortgage companies cranked out the deadliest of all bombs – the Option ARM. Remember when Lex Luthor wanted to set off an earthquake, sending California into the Pacific? The mortgage industry will succeed where he failed.
In this excellent breakdown of the Option ARM, Dr. Housing Bubble discusses California’s (and to a lesser degree, Florida’s) pending disaster. You see, unlike subprime loans that were spread throughout the country, 58% of all Option Arms were planted in California ($109B), and 10% were planted in Florida ($19B). As you can see from this chart, The Option Arm foreclosure boom will begin next year, peak in mid-2011 and end at the beginning of 2013:
Source: T2 Partners, LLC
The problem is multi-fold. 73% of all Option Arms are underwater in bubble states that include the most real estate investing during the boom. How far upside down are these homeowners? An average of 43%! This means that, in the unlikely event that a homeowner could qualify for HAMP or some other loan mod program, the homeowner will not likely do it without a significant reduction in principal.
Furthermore, we are talking about severely depressed states. California is experiencing 12% unemployment, and Florida is at 11.2%
So, when you read that foreclosure rates are down, keep in mind that another disaster is around the corner.
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