OpinionIndustry News

High-risk loans enable buyers to obtain, not afford, homes

Guest perspective: An insider's view on the subprime mess

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Editor's note: Steven Krystofiak offers an insider's take on what's been unfolding in the subprime mortgage industry. But he is no industry apologist. Stay tuned for a series of articles from Krystofiak on Inman News in coming weeks. (Read the first article, "What is a subprime loan? It depends on whom you ask.") Since the turn of the century we have seen a dramatic rise in use of neo-affordability products. Do these products really make homes more affordable? They without a doubt make the monthly payments temporarily lower, but affordable? Let's take a closer look. I want to take a step back and explain the products that I am talking about. They are the often-used interest-only, negatively amortized, no-money-down and extremely short-termed fixed loans, i.e., the 2/28s and 3/27s. The last products on the previous list are usually associated with equally long stiff prepayment penalties. The close cousin of the 2/28s is the 5-year fixed mortgage that I choose not to inclu...