Banks Embracing A Housing-Bubble Favorite: Interest-Only Loans

[Purveyor]

By E. Scott Reckard
January 18, 2014, 7:00 a.m.

Most of the risky mortgages that triggered the financial crisis have disappeared from the marketplace, and lenders will have even more reason to avoid them because of a new federal crackdown on loose lending.

But one housing-bubble favorite — the interest-only loan — will remain a common offering to well-heeled home buyers, despite new rules from the Consumer Financial Protection Bureau. The rules, which took effect last week, exclude interest-only loans from "qualified mortgage" status, which protects lenders from liability over defaults.

Bankers don't seem worried about affluent clients missing payments. With high-end home prices on the rise, they have recently embraced jumbo mortgage lending, including interest-only mortgages. That trend continued this week as the banks reported earnings, with Bank of America Corp. saying 36% of its fourth-quarter mortgages were jumbo loans, up from 23% of originations in the first quarter.

In a conference call with analysts Wednesday, BofA Chief Executive Brian Moynihan said the bank is making non-qualified mortgages to the rich and holding the loans as investments rather than selling them.

"We'll meet the needs of our customers by using our own balance sheet," he said. "We do a lot of mortgages today through our wealth management business."


http://www.latimes.com/business/realestate/la-fi-interest-only-loans-20140118,0,2906726.story#ixzz2qnPNpkC4

[Warpy]

1. That's called RENT, only the renter will have to assume responsibility for paying for all repairs.

In addition, there are generally balloon payments after five years or so, at which time another interest only loan will have to be negotiated. This is exactly the same scam the banks ran before we got Fannie and Freddie to buy up 30 year mortgages so that people would actually own their homes if they stayed put and solvent long enough.

People who don't realize what sucker bait these loans are need to read "The Jungle" by Upton Sinclair. He had quite a lot to say about banks doing mortgage scams.

[Brigid]

2. Aw shit.

This better sound familiar.