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About two-thirds of homeowners get fixed-rate mortgages, paying a higher rate so the deep-pocket lender takes the risk. In his speech in 2004, Greenspan complained that a lot of those borrowers wasted money by spurning ARMs.
"American consumers might benefit if lenders provided greater mortgage-product alternatives to the traditional fixed-rate mortgage," he said. "To the degree that households are driven by fears of payment shocks, but are willing to manage their own interest-rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home."
Lenders were happy to hear Greenspan encouraging consumers to "manage their own interest-rate risks." Mortgage companies began offering innovative ARMs, that previously had been pitched to the rich, to ordinary people . That includes option ARMs -- adjustable-rate mortgages that let borrowers choose how much to pay each month.
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