A twist on the Arm

US banks have been reaping rewards from option adjustable-rate mortgages over the past two years. But with the US housing market slowing sharply, some analysts believe default rates in these products are set to rise. By Jayne Jung

With US housing prices on a seemingly unstoppable upward trajectory for the best part of a decade, it has been increasingly difficult for first-time buyers to get on to the property ladder. Many have turned to a growing range of exotic mortgages, offering low teaser rates and a low minimum payment for an initial period - effectively enabling homebuyers to borrow more.

However, 17 consecutive interest rate increases by the US Federal Reserve between June 2004 and June 2006 means some of these