Banks warned they must scale back on payment-option mortgages

From today's Chronicle, "Federal financial regulators appear to be on the verge of reining in one of the most popular "affordability" mortgages in hot housing markets nationwide -- loans that allow 1 to 2 percent payment rates leading to negative amortization."

"Payment-option mortgages have accounted for roughly a third of all new home loans originated by some major lenders this year. They are especially popular in high-price, high-appreciation markets on the West and East coasts because their low payments permit buyers to purchase costly properties they'd otherwise be unable to afford."

I personally have one of these loans and rarely make the 'lowest' payment option, but it's nice to know it's there... I guess the Fed feels that people can't be trusted and they need to eliminate this option lest people be able to make decisions for themselves...

"The task force is expected to issue new guidance to banks and their mortgage subsidiaries by the end of December on how to market, underwrite and service loans that carry elevated risks of borrower default. Among the key focuses of the new rules will be toughened standards on loan-applicant suitability: If home buyers are not likely to be able to afford payments higher than the minimal rate, lenders should not extend payment-option mortgages to them at all."