I was catching up on my reading and saw this article on Countrywide Financial in Tuesday's Wall Street Journal. I did not find the article that informative until I saw these two gems at the end of the article (my emphasis added):
One reason for concern: Countrywide has heavily promoted pay-option adjustable-rate mortgages, known as option ARMs, a type of loan singled out by regulators for closer scrutiny. These loans give borrowers several payment options every month, including one that is less than the interest due. If borrowers choose that option, the balances of their loans grow. Eventually, that can lead to a big leap in monthly payments due. Option ARMs account for 45% of loans held as investments by Countrywide's banking division.
Countrywide says it has been careful to give these loans only to borrowers with relatively strong finances. Still, the test of these loans will come when borrowers face "resets" to higher monthly payments, Mr. Mozilo said during the conference call. "I'm not sure exactly what will happen then," he added.Countrywide has a large exposure to exotic mortgages and its CEO is unsure of what's going to happen when they start to reset.