No questions are silly. If an answer is on the primer, then a referral to it would be appreciated. What is really silly is not asking questions, or flaming those who do (after all, if you don’t like a question, you could always ignore it.)

Interest rates are not set by any bank, they are set by the market. It’s like asking, why doesn’t Safeway lower it prices? That way the poor would be able to afford food and no one would hungry, right?

ARMs “don’t have to” reset to higher rates. Rates could go up or down, as determined by the market. The market is comprised of hundred of thousands, if not millions of funding agencies, banks, consumers, foreign central banks, corporations large and small, etc.

In many countries, like the UK, etc., ARMs are more prevalent than fixed-rate loans. There’s nothing inherently wrong with ARMs, contrary to popular belief in today’s post boom environment. Fixed rates offer the convenience of fixed payments for the life of the loan, but we consumers pay dearly for that. Moreover, non-exotic ARMs have plenty of safeguards: a fixed rate period, a cap of how high rates can go for the life of the loan, a cap of how high any annual increase can be, and no pre-payment penalties.

Unfortunately, during the recent credit orgy (2001-2006) such safeguards were eliminated, especially in subprime loans.