By November 2009, the share of the home-loan market flowing to adjustable-rate mortgages (ARMs) had slipped below 6 percent. In a sense, this venerable product that has been with us for decades has almost disappeared from the marketplace. And that’s a shame, because the basic ARM is a useful and efficient alternative to fixed-rate mortgages.

The problem for ARMs is that the financial services industry almost engineered the ARM into oblivion, creating numerous, obscure, high-risk products for consumers such as interest-only ARMs and option ARMs, both of which involved a formidable amount of payment shock.

Seemingly congenial, the interest-only ARM, as an example, allowed the consumer to initially pay just the interest and not the principal. Wow, what a break for the borrower, right?

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