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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Ramsey Su who wrote (54627)	2/25/2006 11:43:20 PM
From: Wyätt Gwyön	Respond to of 110194

maybe not, because creditors may demand more of a risk premium on the long-dated fixed mortgages. most ARMs are not going to default during the first year or two (up to the reset), and a greater risk premium can be added at the reset (incorporated into the terms of the contract, as LIBOR plus whatever, where the whatever includes the risk premium). whereas the fixed rate long-dated mortgage needs to incorporate the risk premium from the get-go. that could partly explain the continued preference for ARMs among buyers in overpriced markets.