Finance
What is 'negative amortization' and why is it risky in Nevada real estate?
AA schedule where loan payments decrease over time
BA situation where the monthly mortgage payment is less than the interest accruing, so unpaid interest is added to the loan balance — the borrower owes more over time, not less✓ Correct
CNegative amortization is a standard feature of all Nevada FHA loans
DA type of amortization where only the principal is paid monthly
Explanation
Negative amortization (neg-am) occurs in certain loan products (like option ARMs) where minimum payments are so low that they don't cover all accruing interest — the unpaid interest is added to the principal balance. In Nevada, neg-am loans contributed to the 2008 foreclosure crisis — borrowers who had taken option ARMs found their balances had grown significantly while home values fell, creating severe negative equity. Dodd-Frank restrictions have largely eliminated neg-am consumer mortgages.
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