Chapter 07 - Monthly Mortgage Rate Resets - Beware the Option ARM!

One of the greatest contributors to the housing bubble and subsequent Great Recession was the Option ARM, the optional adjustable rate mortgage. These mortgages allowed homeowners and investors to pay far less than what was normally paid for a mortgage ... for a small amount of time. And then the loan "reset" and the owners' payment skyrocketed! Many unscrupulous lenders simply told their clients that they had nothing to worry about. "In 2 or 3 years, you can sell your home for 50% more. Or we'll just refinance with another Option ARM. No problem!" Well, that was fine as long as the housing bubble continued to inflate. But when the bubble burst, there were millions of homeowners who had mortgages that they could not pay and homes that were worth far less than the mortgages on the homes. The result? The Great Recession!

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