According to top state officials another wave of foreclosures is about to break across the country, this time in the form of resetting option ARM loans.

“Payment option ARMs are about to explode,” said Iowa Attorney General Tom Miller after the meeting. “That’s the next round of potential foreclosures in our country,” he said.

State Attorney Generals in a meeting Thursday with President Obama’s administration warned that a new round of foreclosures could destabilize the timidly recovering housing market.

Arizona Attorney General Terry Goddard offered raw figures on the plight of his state, saying that there are 128,000 option ARMS poised to reset through 2010, with many of them already starting to reset this month. “It’s the other shoe,” he told Reuters. “I can’t say it’s waiting to drop. It’s dropping now.” He also said that they “threaten a much greater hit to the consumer than the subprimes,” the original shock wave of foreclosures.

What are option ARMs? They are mortgage loans that provide borrowers with extremely low initial teaser rates and give borrowers the option to pay even less than the monthly interest on their loans for a certain period of time. This actually causes the loan balance to increase, creating negative equity or “underwater” loans. Once the interest rates reset, the new payments can be as much as 10 times higher than the initial payment, leaving many people unprepared for the huge jump and often resulting in default and foreclosure.

Here’s a graph from the consumerist.com, courtesy of Credit Suisse, that shows when and how big the option ARM hit will be. It looks like tens of billions of dollars worth of these loans will be resetting over the next two years. And odds are, many of these borrowers will not be able to afford the new, higher payments. Surfs up everybody!