The ARM reset issue has disappeared as long as interest rates remains at historical lows. The Option Arm problem still is a very large back cloud looming over California. With in excess of 80% of Pay Option Arm homeowners making the minimum payment each month, interest payments are not being paid and loan balances are increasing. This "negative amortization" has been accumulating for years.
Typically when home prices decrease to 110-125% of the mortgage amount the loan resets to a completely amortized P & I (principal & interest ) payment fully amortized over the remaining term of the note. Hoemowners that can afford only the minimum payment are faced with substantially higher payments on a inflated loan balance. Unfortunately resets aren’t our only issue. The economy continues to tank and over 600,000 jobs are being lost each month. For each Stockton job lost there is the potential for one more Stockton foreclosures and Stockton short sales.
