Surprise: put-option ARM borrowers are not as stupid as lenders

A new study from Experian finds what we told you months ago: that borrowers with no money down facing rising rates and sinking property values will not pay their mortgages.

Well, duh. You've got no skin in the game. You're paying $1500/month as a teaser rate on a home you "bought" for $500,000. A year or two later, the rate resets so that your payments are $2200. Meanwhile, the property market is sinking and you'd have trouble selling for $450,000. The obvious thing to do is stop paying the mortgage and let the bank take the house. You've lived in a nice house for cheap rent for a year or two. You can keep living there for free for a few more months as they go through the foreclosure process. That's a better choice than continuing to pay and having negative equity of at least $50,000 and increasingly difficult monthly payments. And you had a free option to get rich if the bubble continued. That's why we call them put-option ARMs. You just exercised your put.

HT: Countrywide Foreclosures.

1 comment:

Stock Tips said...

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