The chart below, from LoanPerformance via Deutsche Bank, shows how aggressive adjustable rate mortgage lending has been. This chart is specific to a sample of subprime ARM loans, but I would not expect that prime loans would show anything very different. The yellow bars show the debt-to-income(DTI) ratio based on the loan’s initial rate. The blue bars show the DTI recalculated using the fully amortized rate, that is the actual cost of the loan which the borrower has to pay at some point. One can clearly see that the majority of these loans are unsustainable, the borrowers having committed more than 40% of their income to their house purchase. There is no way out of these loans except losses for someone. This was excessively aggressive lending even based on the teaser rate.