Bay Area exotic loans

Exotic loans

For those who couldn't land an affordable unit, the path toward homeownership increasingly involves an adjustable mortgage.
Roughly 80 percent of home purchases in the Bay Area were financed using adjustable-rate mortgages, which tend to be riskier than fixed-rate mortgages because the interest rate floats up or down after an initial period.
Among the most popular types of loans in 2005 were interest-only mortgages -- a subject of ever more debate in economic circles. These loans carry lower initial payments, which allow borrowers to pay only interest for a fixed period of time. Their monthly payments jump when they must start paying principal. If interest rates have also risen during that timeframe, payments rise dramatically.
San Francisco mortgage research firm Loanperformance.com found A whopping 50 percent of buyers in the Bay Area this year used interest-only loans, compared with 45 percent of borrowers statewide and 31 percent nationwide.
Also popular are negative-amortization loans, sometimes called payment-option loans, which allow borrowers to defer even interest payments, and therefore hold the possibility of an increasing loan balance.
At the same time these mortgages are opening the door to homeownership to many, however, federal regulators are growing worried these exotic loans may pose threats down the road.