MichaelSchmichael

Credit Crisis Review: ARMed for Failure

The article and comments re modified terms disregard the impact loan recasts and teaser rates are going to have on losses in the Alt-A portfolios. The "payment shock" and related defaults associated with these factors will operate independently of interest rates. Further, because many of the borrowers could not afford the payments on their principal balances if subject to fully amortized payments at market interest rates, loan modification is simply not an option without a principal haircut (which banks don't appear willing to take on a preemptive basis).