'Intelligent discontent is the mainspring of civilization.' -- Eugene V. Debs

Wednesday, June 18, 2008

The Masque of the Red Death (Part 2.5) 

Mr. Mortgage has provided an important piece of supplementary information in relation to my posts about the economic implosion caused by bad debt and the credit crunch (click on the Housing Bubble and Credit Crunch labels at the end of this post for background) :

While the Pay Option ARM maybe a perfect loan for someone such as an investor with a large amount of equity in a property who is waiting for the purchase market to improve before selling and wants to cash-flow, my guess is that 90% of Pay Option borrrowers are in it because they only could afford the home by paying the minimum monthly, negatively amortizing payment. These loans are the ultimate toxins, even more so than subprime 2/28’s. At least with subprime loans, the principal balanced owed doesn’t grow every month.

If you don't immediately grasp the disturbing implications of this, consider setting aside the time to read Monday's tutorial on the subject so that you can place it within the appropriate context. Furthermore, the entirety of Mr. Mortgage's post on the subject of Pay Option ARMs as they pertain to Wachovia Bank, already linked in the first sentence of this one, is grimly humorous and well worth reading as well.

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