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We really haven't seen any REAL damage yet in Alt -A. Wait about 2 more years or so when the Option arm minimum payments start to run out on these deals (Typically 5 years or when the existing balance exceeds the original balance by 15%- THEN YOU ARE FORCED TO REAMORTIZE THE LOAN INTO FULL PAYMENTS FOR THE REMAINING TERM)
Yep, payment shock will really ensue. In most markets where housing is flat or declining more and more borrowers will be forced to upgrade to more traditional 1st + 2nd financing to stop the equity bleeding from these loans. Fortunately, awhile back it was tough to get over 80% on an option arm loan, so some of these borrowers may still have a chance to get out -- however there are a few at 100% CLTV that have been sold recently.
Problem is, going from Option Arm (Neg AM) to a traditional loan or even I/O it's going to increase the average monthly payments 25% + over the existing payments -so if the lack of equity didn't kill you, the payment will. Couple that with some extra car payments and credit cards and you're really screwed when that day comes.
Best scenario are the borrowers in states where the value is still rising, - you MAY still be able to get away with a loan to get out if the new loan is under 80% of your existing value- which means you may still get a reasonable payemnt. However if you're in CA, AZ, NV, or CO for instance, kiss your a$$ goodbye.
rjp
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