When option ARMs adjust
Of the $200 billion of option ARMs outstanding, Fitch Ratings expects roughly $29 billion to recast by the end of 2009 and an additional $67 billion to recast in 2010. The potential average payment increase on this recasting population is 63%, representing on average an additional $1,053 due each month on top of the current average payment of $1,672. Data suggest that these large payment increases could cause delinquencies to more than double after recast.
Fitch, quoting LoanPerformance data, says option ARMs accounted for at least 40 percent of all "nonsubprime," non-Fannie and Freddie securitizations of adjustable-rate loans in both 2006 and 2007.