Examples of Option ARM in a sentence
These payments were equivalent to approximately 62% of the original principal balance of the Option ARM loans.
With respect to unliquidated Option ARM loans that UBS has agreed to repurchase, UBS expects severity rates will be similar to payments made for liquidated loans.
Austin Kilgore, “Subprime Problems Persist, as Alt-A, Option ARM Crisis Brews,” HousingWire, January 11, 2010, https://www.housingwire.com/articles/6208-subprime-problems-persist-alt-option-arm-crisis-brews.
Payments made by UBS to date to resolve repurchase demands have been for liquidated adjustable rate mortgages that provide the borrower with a choice of monthly payment options (Option ARM loans).
This is where the unique features of the Option ARM come into play.
A pay-option adjustable-rate mortgage loan (also called an Option ARM) is a mortgage loan where the borrower has the option to make one of three payments, a minimum payment that increases the amount of principal the borrower owns on the mortgage (called negative amortization), an interest-only payment that neither increases or decreases the principal the borrower owns on the mortgage, or a full payment that decreases the amount the borrower owes on the mortgage.
At a certain point in the life of an Option ARM, a “reset” occurs and the borrower must always pay the full payment.
All of the mortgage loans in this securitization were Option ARMs. At an investor conference in September 2006, Countrywide stated that its underwriting guidelines required that a borrower be able to afford the full payment on the Option ARM.
In the 1980s and 1990s, the Option ARM was primarily a niche product directed towards sophisticated borrowers.
In response to certain information, CFC and CB decided to limit the types of Pay- Option ARM loans that CB held for investment.