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Option ARMs, Who Thought Up these Time Bombs?

Option Arms are far deadlier than subprime ever was. With subprime, the issue was unaffordable mortgages mainly due to high interest rates adjusting higher. But at least borrowers would be making full principal and interest payments and many lenders can try to solve the problem by modifying the loans and lowering their rates in some cases.

With Option Arms, borrowers were qualified using the artificially low minimum payment that simply inflates their balance each month. With home prices falling, they keep owing more on their homes every month. No amount of modfication will help because lenders will only modify them into regular principal and interest payments and these overstretched borrowers can't afford them. They just have to walk away in most cases.