Wednesday, October 22, 2008
The banking system taking another blow
"The bank wrote off $810 million in option adjustable-rate mortgages, up from $508 million in the previous quarter. Borrowers aren't paying interest on about $9 billion of the loans, or 7.6 percent of the total". Wells Fargo expects a cumulative loss of $26 billion from option-ARMs, with more than 90 percent of those credit costs to be incurred by the end of next year. Steel in September estimated such losses would reach about $14 billion. Option- ARMs, which Wachovia no longer offers, allow borrowers to defer part of their interest payments, boosting the principal.