 |
 |
|
 |
|||||||||||||||
 |
|||||||
|
 |
By BOB TEDESCHI
Published: March 17, 2010
(Excerpts) BORROWERS
have had fewer mortgage choices in recent years, and now the list is shrinking
further. Freddie Mac,
one of the two government-sponsored companies that set lending standards for
mortgages, announced last month that in September it would stop backing
interest-only mortgages, or loans that give borrowers the option of paying only
the interest on the principal balance for a period of time. Michael
Cosgrove, a Freddie Mac spokesman, said the company had actually begun phasing
out the loans last year, after big losses on the mortgages in the previous
three years. At the end
of 2009, Mr. Cosgrove said, nearly 18 percent of the interest-only loans in
Freddie Mac’s portfolio were at least three months delinquent, versus 7 percent
for all of the company’s loans. Fannie Mae,
too, has announced huge losses on interest-only mortgages, but a spokeswoman
would not say whether the company might shut off these loans. Borrowers
will still have options. Smaller lenders say they will most likely continue
making interest-only mortgages, but only to the borrowers best suited to them. “For the
right people, an interest-only loan is a great product,” said Michael
Moskowitz, the chief executive of Equity Now in Manhattan. The loans work best, he said, for
wealthier and financially disciplined borrowers. In a typical
interest-only mortgage, borrowers choose a fixed- or variable-rate loan, and
they pay only the interest on the mortgage for the first 10 years. They then
pay the principal and interest for the next 20 years. The monthly
mortgage bill, therefore, can jump in the 11th year. On a $500,000 loan with a
5 percent fixed rate for 30 years, the monthly payment for the first decade is
$2,083, but then it jumps to $3,300 for the remaining 20. (Payment on a
traditional 30-year mortgage would be $2,684.) Because such
loans are considered riskier than conventional ones, fewer lenders offer
fixed-rate interest-only mortgages, and the rates from those that do are
typically a percentage point higher. But
interest-only ARMs, or adjustable-rate mortgages, still carry attractive rates.
In
mid-March, Mr. Moskowitz said, borrowers with good credit could get a 4.5
percent initial rate that would remain fixed for five years, then
increase a maximum of five percentage points over the following five years. These days,
borrowers cannot qualify for the loan unless they show they can pay that 9.5
percent rate, known as the “fully indexed” rate. Before the mortgage crisis,
borrowers often could qualify for the loans simply by showing that they could
afford the lowest rate. But many of
those who took out interest-only loans at the peak of the market did so because
that was the only way they could afford the payments, he and other mortgage
executives say. These borrowers
assumed, given the market’s seemingly unyielding ascent, that they could simply
sell their homes for a hefty gain before the interest-only period ended. Or,
they reasoned, they might refinance the loan into a conventional fixed-rate
mortgage as their earning power increased with time. Financing
out of an interest-only loan may not be easy. A version of this article appeared in print on March 21, 2010,
on page RE6 of the
|
|||||
|
|||||||
