ARMs and interest-only mortgages take over mortgage market

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Tuesday May 17, 02:43

ARMs and interest-only mortgages take over mortgage market

(by Julia Jenson)

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The housing market is hot, which cause people to stretch their means to buy a new house, the report of the Mortgage Bankers Association reveals. This is revealed through an increase in adjustable-rate and interest-only mortgages that constituted two-thirds of mortgage loans originated in the second half of 2004.

"The situation with interest-only ARMs is just one of several very scary things going on in the mortgage industry," says Stu Feldstein, president of SMR Research Corp., a market-research firm in Hackettstown, N.J.

The trend is especially noticeable in the hot markets such as Florida or California where borrowers are turning to ’special’ mortgage forms such as interest-only mortgages or zero-down payment as people realize that they allow to borrow more and to afford houses they would not have been able to afford with regular 30-year fixed-rate mortgages.

According to the Mortgage Bankers Association’s survey, the interest-only and ARM share of mortgage originations rose to 17% for interest-only loans and 46% for loans with adjustable-rate but without an interest-only feature, based on the total number of loans originated in the second half of 2004. This stretch has generated fears that a string of defaults may be triggered by rising interest rates.

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