Fitch: Default Servicing Needed on Option ARMs

Fitch Ratings has advised lenders that the payment-shock risk inherent in option adjustable-rate mortgages requires a special operational focus on default management.Fitch said mortgage servicers "should have extensive default management procedures and practices" in place prior to taking on option ARM servicing assignments. "The servicer's objective is to return loans to performing status whenever possible, but that may be more difficult if option ARM borrowers simply turn in the keys when their property value is not sufficient enough to cover their debt," said Karen Eissner, a Fitch director. Fitch can be found online at http://www.fitchratings.com.