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If you are not familiar with what an option ARM mortgage is, read this piece [Aug 13, 2008: Option ARMs- Who Thought Up these Time Bombs?]]. I too was unfamiliar with it, despite following markets closely, until I read a BusinessWeek article in October 2006. Interest only mortgages? Yep I knew about those. Alt A mortgages? Yep. [March 19, 2008: Alt A Mortgages Beginning to Break Down] But option ARMs? Wow - eye opening. In summary these loans are the type where your mortgage payment not only does not cover the interest (as with an interest only mortgage) but does not even cover all the principal. So each month your principal goes UP - this is the bestt kind of loan for day trading homes (as was all the rage in 05-07)... you put the least amount of money down, and hence your leverage is the highest. Once I read that article, it all began making sense to me... how people on $40K of income were buying $560K houses in California. And then I got very worried... but the bubble would not burst for 5-6 quarters after that reading.
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