After Bubble Forms, Warnings Abound On IO Loans
This SF Gate report on interest-only loans includes this warning in the title. "POPULAR BUT DANGEROUS: If home prices flatten, borrowers could lose."
"They accounted for nearly 70 percent of home purchases in the first two months of the year in San Francisco, Marin and San Mateo counties, up from 18 percent in 2002 and 59 percent in 2004. In San Jose, 61 percent of purchase loans in the first two months of 2005 were interest-only, up from 9 percent three years ago. And 78 percent of home buyers in the Vallejo metropolitan area chose interest-only loans, up from 6 percent."
"'This is frightening, frankly,' said UC Berkeley economist Ken Rosen. 'I'm worried that more and more people are using (homes) as an investment vehicle and not as a consumption market, and that's true of the peak of housing markets. This is the edgiest we've been in the market for a long time. This reminds me of the late 1980s."
Here's another quote for the history books. "California Association of Realtors economist Leslie Appleton-Young argues that the loans are just the latest advance in the mortgage market. Little outright speculation is occurring, she said. The popularity of the loans reflects the fact that they allow people to get into homes they otherwise wouldn't be able to afford. 'Instruments that help people get into the housing market are a good thing.'"