If you thought that the recent sub-prime mortgage bust was bad, we could be in for another wave of nasty foreclosures over the next couple of years. The poor performing adjustable rate mortgages will be replaced by an even more horrible "optional adjustable rate mortgage" bust. These types of sub-prime mortgages were often used for individuals with poor credit who could only afford to make the minimum payments.

An option ARM gave borrowers the option to pay the interest each month or skip it and have it added to the principle owed until the amount reached a certain percentage of the loan (110 - 120%) or up to five years.

The problem is not only that housing values have dropped, eliminating any potential equity, but also that most of these borrowers owe more than their original loan amount. Unable to refinance, and seeing that they are as much as 40% underwater in their home, experts say that many option arm borrowers may simply choose to strategically default on their loans.

So what's the smart thing to do now? Tune in this week to Bulletproof Your Financial Future on KNRS - now on FM 105.7, Saturday at 1:00 pm MST!

*** Resopnse to property owner ***

We are not really sure how great the economic impact these defaulting option ARM loans will be. Alan Greenspan said the economy could withstand another 5% drop in home prices, but if they fall much beyond that, more conventional mortgages will be underwater. My guess is that it is not going to be very good, and our research shows that this new wave of defaults could be pretty nasty. In my opinion, there could be a lot of opportunity in the future to purchase, once this next dip is over.

I hope that all goes well with your commercial property. Right now the commercial market is looking to be pretty saturated, so hopefully you will be able to stay competitive with falling lease prices.

Thanks for your comments!
- Bruce