Moreover, depository institutions are generally well-capitalized and well-diversified, which means that prices could fall significantly without leading to a significant number of bank failures. Still, affordability products pose special risks--for instance, there is a greater likelihood that borrowers will experience negative amortization, that is, since the monthly payments do not cover current accruing interest, their mortgage balances will increase over time.
Since borrowers with traditional mortgages expect the amortization of their loans will decrease their balances and build equity in their homes, we would expect lenders to clearly communicate to borrowers that this may not happen with non-traditional products.