Bank Homes to Arise from 350,000 Exotic Mortgages

The expected increase in number of bank homes in the coming months and in the next few years will arise from the 350,000 option adjustable mortgages that were taken out during the boom years from 2004 to 2007, according to a report released by Standard & Poor’s this week.

The S&P report showed that almost all the 350,000 borrowers who took out option ARM loans are now underwater because of the unpaid interests that have not been paid. Worse, many of these exotic loans – those taken out in 2004 – are now scheduled to reset to higher rates this year or next year. Even newer loans can reset earlier than scheduled if the interests have accumulated to a level where the loan-value ratio has surpassed 110 percent or 125 percent.

According to the report, many borrowers will soon be required to make monthly payments staggeringly higher than what they have been paying. If homeowners are struggling to pay lower monthly payments now, it would not be surprising if many of them give up and walk away from their mortgages, leaving lenders with more bank homes to handle.

By Cassiano Travareli