ARM-ed And Dangerous

Via Atrios, comes this report from Housing Wire on adjustable rate mortgages (ARMs):

The market can also expect heavy losses among Option adjustable-rate mortgages (ARMs), a product that allowed negative amortization by letting borrowers choose to pay only the minimum monthly payment. Fitch Ratings expects significant payment shocks over the next several years as a wave of Option-ARMs recast from the minimum amount to a fully amortizing principle and interest payment. These recasts are expected to drive substantial losses among the Option-ARM sector.

In other words, most of the rest of the losses will be coming from ARMs as they adjust and put payments out of reach for millions of Americans. The resulting squeeze will lower prices as foreclosed ARM homes are taken back by the banks, leading to more problems with the rest of the housing market.

The housing market isn't coming back anytime soon.