Option ARM resets

Looking at this graph, it looks like Option ARM resets begin to become a problem in about the mid-point of this year, and really shoot up around mid-2011. According to Calculated Risk, most Option ARMs are negative equity. The prevailing interest rate will not likely be a problem, since mortgage interest rates are lower now than they were five years ago. The problem is that many Option ARM borrowers have probably not been paying much of their principal yet.

Notice that at its peak, the Option ARM wave will be slightly smaller than the subprime wave of 2007-2008. The subprime problem has past.

CNBC discusses the problem:

Thousands of American homeowners are starting to see their monthly mortgage payments skyrocket, dealing a fresh blow to the already shaky housing recovery.

The widely feared reset of thousands of option adjustable-rate mortgages—where both interest and principal payments rise sharply—is already leaving many homeowners struggling to keep a roof over their head. ...

Terms of the loan usually allowed the borrower to make low monthly payments initially—sometimes by just paying interest only.

But as the terms of those mortgages now readjust, homeowners are facing much higher mortgage payments at a time when the value of their house has plummeted and many are out of work. In some cases, homeowners who chose a very low starting interest rate have actually seen the overall amount of their mortgage increase—known as negative amoritization—putting them even deeper in debt.

The question is how many of these Option ARM mortgages have already defaulted?