I'm going to defend this product, well, a little bit. Roberta Murphy, one of my favorite hometown Active Rain Realtors posted a blog about neg am loans calling for stricter underwriting guidelines. I essentially agree with her but want to explain a few finer points of neg am loans.
Firstly, let's start calling these products by their true names: either deferred interest loans or negative amortization loans. Why am I being a stickler for that? The "Option ARM" name was coined about 8-9 years ago by Washington Mutual in order to downplay the "negative connotations of the product's real description". Countrywide called it the "PayOption ARM" and World Savings renamed it to the pick-a-payment loan. Sounds nicer than "negative amorization" doesn't it? Thank the marketing department of WaMu, World, and Countrywide for that twist.