OpinionIndustry News

Exotic mortgages put homeowners at risk

Future-Proof: Navigate Threats, Seize Opportunities at ICNY 2018 | Jan 22-26 at the Marriott Marquis, Times Square, New York

Is it ethical for real estate and mortgage brokers to ignore the inherent risks of so-called exotic mortgages in order to help more people buy their own homes? The answer, arguably, is no. Granted, higher house prices and mortgage interest rates have made home-buying much more difficult in recent years, and it would have been impossible for many new homeowners to have bought a home without some of the more creative loan products that are now available. It's no surprise that these mortgages have become quite popular, even though borrowers who can't manage to make the higher payments in later years face a financial crisis and potential loss of their home. Two examples of these newer, nontraditional mortgages are interest-only and payment-option loans. An interest-only mortgage defers payment of any principal for an initial term after which the monthly payment is adjusted to amortize the loan over the remaining term. A payment-option mortgage allows the borrower to select a f...