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New Loan Trouble Seen With Borrowers Who Took Out Option Adjustable Rate Mortgages

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While most of the media attention has been on the sub-prime mess, the LA Times reports that more than 75 percent of option ARM (pay-option adjustable-rate mortgages) borrowers have been making only the minimum payments and "the delinquency rate on option ARMs already is jumping and is likely to keep rising sharply, [the] S&P said [last week]." Additionally, the Consumer Credit Counseling Service reports 25 percent of the calls coming in--the San Francisco company fields calls from people having loan trouble--now involve option ARMs. Popular to buyers in California, Florida and Nevada, the mortgages were also popular with brokers, who took home big rebates. But people like Joan Olsen, a retired welfare worker who refinanced her San Diego condominium 15 months ago with an option ARM, got burned and most disturbing about her case--and perhaps most telling--is that Olsen says she didn't understand what she was signing up for. “I have no one but myself to blame for signing off on something I didn’t understand," she tells the Times.
· Defaults moving beyond sub-prime [LA Times]