In a report released recently, Lehman Brothers talked about the product innovation in hybrid neg-am loans.
In the report, analysts looked at the key features of these loans. Lehman said that in the past year, prime ARM supply was largely centered on two very dissimilar products: monthly reset option ARMs and long reset hybrid IOs. Analysts said that this focus is set to change with the emergence of hybrid mortgages with neg-am features. They pointed out that hybrid neg-am mortgages have a better credit profile compared to option ARMs. Furthermore, prepayments in this sector could be slower versus comparable hybrid IOs.