By Dan Ferris in the S&A Digest:

...the biggest bank in the country has been quietly selling some of the option-ARM loans it bought when it acquired Countrywide Financial last year. American Banker reports some of the loans Bank of America has been dumping sell for as little as 40 cents on the dollar. The banking trade magazine says delinquency rates are 30%-40%.

At the moment, the resetting of subprime mortgages has abated, and the resetting of option-ARM loans hasn't yet kicked into high gear. At the Value Investing Congress a couple weeks ago in New York, co-host/investor Whitney Tilson put up the slide below, which tells you why mortgage resets aren't filling the headlines quite like they used to and why you can expect them to take the stage front and center over the next couple years...

 

The purple mountain on the left is the subprime crisis, which is behind us in 2007 and 2008. The mostly blue mountain on the right is the option-ARM crisis, a two- to three-year slog that lies just around the next bend and could continue through 2012.

Right now, we're sitting in the eye of this mortgage hurricane. When we hit the opposite wall early next year, the storm will become deadly all over again.

Crux note: Dan is the editor of Extreme Value, and he's currently recommending a true rarity in the gold industry - a deep-value gold stock with the very real potential to return 28 times your money. If you're not already a subscriber, you owe it to yourself to click here...

More from Dan Ferris:

Warren Buffett's wisdom on when to sell

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