The already frustrated US mortgage market, is set to suffer further knock backs, in the next two months, as $96 billion of risky home loans sold with the initial flexible payment options switch to more strict terms.

These will increase borrower’s monthly payments by about 60%. The changing terms could more than double the number of borrowers falling behind on so-called ‘option adjustable rate mortgages’ issued between 200-2007.

At the five year mark, these optional ARMs are ‘recast’ and the monthly payment will be increased, by a potential average 63%. Late payments and defaults on such mortgages are already running at a sky time high at 24% in some areas. It is expected that a higher monthly payment will be introduced by the end of 2009, and an additional $67 billion to recast in 2010.

A spokesperson stated: "The current severe environment has left borrowers with few alternatives to foreclosure."