We’re wishing we hadn’t already used-up our “An ARM (And Quite Possibly A Leg)” headline. Considering how alarmed we’ve been with the explosion of ARM financing, we’re down right terrified with the adoption of “option ARMs”.

A couple of excerpts from today’s WSJ article “Sore ARMs? A Peek Inside Potential Mortgage Troubles”:

[California] has one of the frothiest housing markets, and banks have been enablers.
A small Newport Beach, Calif., bank with a stock-market value of $2 billion, Downey writes option ARMs like Californian plumbers write screenplays.

As of June 30, $12 billion, or 87% of Downey’s ARMs are option ARMs. Its customers have racked up $72 million in additional balances on those mortgages by choosing to make minimum monthly payments. That’s called negative amortization.

Downey Finance Chief Tom Prince says concerns about option ARMs are exaggerated and that his bank previously has had even more exposure to them without problems. “I’m not particularly concerned about it,” he says.

Maybe not, but we are (concerned that is).