Nov
15
The Feds explain high risk mortgages
Filed Under mortgage
Back in September, the Feds came out with a press release entitled: Federal financial regulatory agencies issue final guidance on nontraditional mortgage product risks–September 29, 2006. The purpose of this press release was to address the problems our nation has been having with high risk mortgages.
These products, referred to variously as “nontraditional,” “alternative,” or “exotic” mortgage loans (referred to below as nontraditional mortgage loans), include “interest-only” mortgages and “payment option” adjustable-rate mortgages. These products allow borrowers to exchange lower payments during an initial period for higher payments later.
These loans often carry the following layers of risk:
- Interest Only
- Adjustment of Rate
- Negative Amortization
- Prepayment penalties
: Interest only payments do not require principal reduction therefore your loan balance stays the same.
: When adjustable rate mortgages begin their adjustment phase, your loan payments may increase.
: When you only make the minimum payment your principal balance increases every month.
: If you decide to refinance or sell your home before the penalty expires, you may face severe monetary penalties.
For more on the Feds effort to explain high risk mortgages, check out these addendum’s which explain:
Phil’s take: I take pride in understanding these “high risk” mortgages inside and out. However, it took time to really understand all the nuances. On the other hand, a borrower has a month, maybe less, to really understand what they’re getting themselves into. The above documents are a good start but it won’t deter mortgage companies from coming up with even more complex loan programs in the future.
Is your rate too high? If you're looking to compare mortgage rates or to get a rate quote on a FHA loan start hereFile this under: adjustable rate mortgage, mortgage, negative amortization, prepayment, rate, refinance, va
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