1. Why is an increase in accumulated negative amortization from one year to the next a signal that a decrease in earnings may follow?

   		A loan loss may follow because once the unpaid interest on a pay-option ARM loan reaches a certain percentage of principal borrowed, the loan repayment resets to a higher amount to cover the interest payments, and borrowers may be unable to pay the subsequent higher monthly payment after the payment resets and they may default.
   		Accumulated negative amortization represents interest that will be earned in future periods but has been paid in the current period.
   		This shows that there may have been a decrease in the high-risk portion of a lenders loan portfolio.
   		Lender needs to refinance the loans when they mature