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Optobear

Option Arms To Default

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http://www.bloomberg.com/apps/news?pid=206...id=aZKwTlyVwvxo

Option ARM Defaults Shrink Size of Recast Wave, Barclays Says

July 27 (Bloomberg) -- The wave of “option†adjustable- rate mortgages recasting to higher payments, projected by some economists to represent a looming source of foreclosures that will hurt housing markets over the next few years, will be smaller “than feared†because many borrowers will default before their bills change, Barclays Capital analysts said.

Option ARMs offer initial minimum payments that fall below the interest borrowers owe, creating growing balances and potential spikes in monthly bills. Payment resets occur after five years or when the debt grows to a preset amount, typically 110 percent to 120 percent of the original principal.

About 40 percent of borrowers with option ARMs are already delinquent, and “many†of the others will start missing payments before their obligations change, the Barclays mortgage- bond analysts wrote in a July 24 report. Recasts of securitized option ARMs will peak at about $6 billion a month in mid-2011 and include “volumes lower than feared†overall, they said.

“The additional risk really will only be for borrowers who manage to stay current over the next couple of years and might default due to a payment shock,†the New York-based analysts including Sandeep Bordian and Jasraj Vaidya wrote.

Are they saying, don't worry, it won't be a problem that these people won't be able to afford their new higher payments on their mortgages because they will have already defaulted?

It is like something from Lewis Carroll.

Optobear

Edited by Optobear

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sounds like another "a lot of big sums add up to a big sum" moment.

people in these places must be losing it...denial is the new reality.

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The wave of “option†adjustable- rate mortgages recasting to higher payments, projected by some economists to represent a looming source of foreclosures that will hurt housing markets over the next few years, will be smaller “than feared†because many borrowers will default before their bills change, Barclays Capital analysts said.

:blink::blink::blink:

About 40 percent of borrowers with option ARMs are already delinquent, and “many†of the others will start missing payments before their obligations change, the Barclays mortgage- bond analysts wrote in a July 24 report. Recasts of securitized option ARMs will peak at about $6 billion a month in mid-2011 and include “volumes lower than feared†overall, they said.

“The additional risk really will only be for borrowers who manage to stay current over the next couple of years and might default due to a payment shock,†the New York-based analysts including Sandeep Bordian and Jasraj Vaidya wrote.

Whitney Tilson’s hedge fund, T2 Partners LLC, in a presentation dated July 3 said option ARM recasts may peak in the second half of 2011 at more than $16 billion a month, citing Credit Suisse Group data. While the lower number from Barclays analysts suggests an earlier end to the foreclosures contributing to record home-price declines, investors and some analysts including at Barclays and JPMorgan Chase & Co. have said the U.S. government’s effort to have more bad mortgages reworked will delay some defaults.

The Barclays analysts, who wrote that about 88 percent of option ARMs packaged into securities in 2007 will eventually default, said that after a rally in prices they no longer suggest owning related bonds, “a trade we have been recommending for months.â€

Super-Super Securities

Typical prices for the most-senior option ARM bonds from 2007 have jumped about 40 percent from March lows to 46 cents on the dollar, according to their report. JPMorgan analysts in New York including John Sim and Chris Flanagan wrote in a July 24 report that prices for so-called super-super securities may reach the “mid-to-high 50†cents on the dollar.

:blink::blink::blink:

VI ramping to sell the bonds????

This really doesn't make any sense at all.

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http://www.bloomberg.com/apps/news?pid=206...id=aZKwTlyVwvxo

It is like something from Lewis Carroll.

Optobear

Agreed...

What utter obfuscation, it makes no sense at all, just a bunch of words strung together to justify fees and confuse people sufficiently to warrant a need for similar 'expert' analysis in the near future.

Edit...forgot to say 'Agreed'

Edited by GreySquirrel

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