by Calculated Risk on 1/25/2008 04:31:00 PM

From Housing Wire: Option ARM Specialist FirstFed: Delinquencies Up 231 Percent in One Quarter

... FirstFed said that option ARMs hitting a forced recapitalization were “a contributing factor in the higher level of delinquent loans.”

During the fourth quarter of 2007, just over 1,800 borrowers, with loan balances of approximately $830 million, reached their maximum level of negative amortization and had a resulting increase in their required payment. The bank said that it estimated that another 2,400 loans totaling approximately $1.1 billion could hit their maximum allowable negative amortization during 2008.

Hitting the maximum level of negative amortization doesn't necessarily mean the homeowners will be in trouble. But the fear is that many of these homeowners used Option ARMs as affordability products (they could only buy the home making the neg-am payment), and that they will be in unable to make the payment when they no longer have the neg-am option.