Bank of America said in a regulatory filing this week the average borrower with an option adjustable-rate loan ("Option ARM) now owes 95 percent of the value of his home, up from 76 percent when the loan was made.Seventy-two percent are making less than full interest payments and 12.4 percent are at least 90 days delinquent. The average FICO credit score for existing Option ARM borrowers has dropped to 680 from an original average score of 715.
Bank of America has said about 66 percent of the Option ARMs went to California and Florida borrowers.
Bank of America is not the only big lender with Option ARM headaches.
Washington Mutual, the "godfather" of the Option ARM loan, has seen its shares tumble over 90% this year, from $40 to less than $4 per share.
Wachovia Corp said borrowers in its $122 billion "Pick-a-Pay" Option ARM portfolio owed 85 percent of what their homes were worth on June 30, up from an original 71 percent. In California's Central Valley, the average was 109 percent.
In an Option ARM loan, borrowers are given four payment options: 1) a minimum payment based on an initial one-year "teaser" rate (often as low as 1.95%); 2) interest only on a 30-year fixed rate amortization; 3) principal and interest on a 30-year fixed rate amortization; 4) or an accelerated paydown option based on a 15-year amortization.
Needless to say, it's option (1) that killed the Option ARMs, and the shareholders of those who offered it.
