Bankapedia's Take

As mentioned above, the term recast is typically used in the context of an option ARM’s principal exceeding the value of the home. The bank may have originally lent on an LTV of 90% but because of the negative amortization of the loan, the principal amount ended up as 110% of the value of the home. The bank will typically cut off the borrower from being able to make the lowest payment, which was the cause of the negative amortization, and recast the loan, now calculating the payments based on a loan amount of 110% of the value instead of 90%. Basically, it’s the lending equivalent of getting cut off at the bar for drinking too much.