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Option ARMs: The Banking Backdrop of 2009

The problems with the Option ARMs that you've mentioned are compounded by a number of factors that seem to correlate with these products.

First, these loans were typically made to borrowers who were betting on appreciation. Second, they're often made to borrowers who are self-employed... many of whom are not very good personal money managers. Third, and most pernicious, is that these loans are nearly all 100% LTV, often with "generous" appraisals.

Not only would most of these borrowers need considerable payment relief on the TEASER rate in order to stay, they'll more than likely walk without substantial principal writeoffs... which most lenders are unwilling to offer.