Homeowners With New Exotic Loans Aren’t Always Aware Of the Risk Involved
Although the newer mortgage products allow almost anyone to buy or refinance a house, consumer groups say the loans often contain land mines hidden in the fine print. Consumer advocates say the loosened standards are putting more people at risk as loans originally designed for sophisticated individuals are being marketed to far-less-savvy borrowers.
[tag]Alternative mortgage loans[/tag] were first developed for a handful of people with promising long-term earnings potential: young lawyers destined to make partner, doctors finishing medical school or stock brokers who get large commission checks several times a year. But as housing prices have surged, outstripping wages in the most expensive markets, alternative financing has become a popular path to homeownership. These new loans come in many forms. “[tag]Nontraditional[/tag]” mortgages allow borrowers to pay only the interest on the loan or even only a portion of the interest each month, without being required to pay down the principal. Nationwide, more than a third of borrowers who got loans in the first nine months of 2006 got nontraditional loans, up from about 2 percent in 2000, according to First American LoanPerformance, a real estate information firm.