Michael Youngblood, head of ABS research at Friedman Billings Ramsey, said last week that investors should be more concerned about the general prospect of payment shock to be experienced by all adjustable rate subprime borrowers - either with a hybrid ARM or an interest-only ARM - than with those loans' form of amortization. Youngblood said the general characteristics of IO ARMs and hybrid ARMs are nearly indistinguishable, and where there are material differences - such as the borrower's credit score - the IO loans actually come out looking better, contrary to the skeptical views of the subprime IO loan by many market participants.

For example, as of February, the average FICO outstanding for IO product was 667, whereas the average FICO for a fully amortizing loan was a 626, he said, and early credit performance of IO loans is superior to fully amortizing loans with comparable loan-to-value ratios.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.