Saturday, March 19, 2005

Mortgage Broker Doesn't Like Credit Trend

There is a least one mortgage broker who doesn't like some aspects of the easy money trend. David Reed writes in Realty Times that he doesn't "like these..Payment Option ARMs."

"The name has been changed from the more sinister "Negative Amortization" moniker to the Barbie-like "Payment Option Arm."...I'll tell you why they're being resurrected. Lenders can freak out pretty easily when they see their pipelines shrink..So what do lenders do? They find a new product and market the dickens out of it. And when one lender finds a new product, then the other lenders must follow or else they can be perceived as not having as many loan choices as the next guy."

Mr. Reed does a good job detailing how the loans work. "Under Payment Option programs.. loans can "negatively" amortize..actually increasing the principal balance rather than decreasing it."

Decades of prudent lending practices have been cast aside because an industry is addicted to the housing bubble. Whoever is supposed to be regulating these guys should share the blame when this falls apart. Mr. Reed gets the last word, "Neg-Am loans have little use in this business."


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