Howdy All,

I have been poking around on the internet looking for numbers on how many 100% interest only loans there are floating around out there. Even just numbers on what % of loans given in the last 5 years were of this type would be good.

I just cannot find good numbers. Lots of blog entries with no links to real data, but that is it.

Anyone have something on this?

Thanks,
R

Just heard on NPR about IO loans. They said there are 1 TRILLION dollars of these loans in the US. That is just sick! Check the NPR website for the broadcast, scary stuff.

Yeah... the whole concept is kind of scary.

When you sort of plot out the way the market is going and begin to realize that folks who have bought property in the last year or two this way now OWE more than the home is worth. Well.... it does not take much imagination to speculate on where it could lead.

R

It is unfortunate that so many people were either greedy or were talked into an IO product for the purchase of their primary residence. If you look deeply at the majority of these you will find people that did this so they could get that bigger house or one with more upgrades than they could afford with a conventional product. Now there are also the 40+ yrs lons out there. I do not feel sorry for those that used an IO so they could buy that Bigger and better home to keep up with the Jones's and now find themselves owing more than their home is worth. This is simply a case of LO's that gave very bad advice to their clients so they could write that bigger loan.

IO loans were never designed for a person to purchase a primary residence except for specific markets where property values were artifically inflated so the average family could afford an average home, but instead LO's talked their clients into this so they could afford that McMansion instead of buying a smaller house that would have met their needs using a conventional product.

IO products are perfect for investment properties where cashflow is more important than principle reduction

Sorry for the rant... BUT. I am sick and tired of everyone blaming IO loans for the high foreclosure rates. Look at yourself. As a realtor you should have a good idea what kind of home a prospect should be in. You should look at Debt to Income issues, work history etc...

The client can make principal contributions anytime they choose on IO loans, they choose not to.

If you look at the Foreclosures, a high majority are FHA loans. WHy? because FHA will does loans that subprime companies will not touch. I get tired of everyone blaming the lenders for "bad loans". Where is the relators responsibilty? Shouldn't a buyers agent look to see what a client realistically can afford? Shouldnt you as the realtor coach the client? If you cant, what makes you think the mortgage broker can?

Lets be real, if a person took out a 30 yr fixed mortgage on a $200,000 home at a rate of 6.75% 3 yrs later they still owe close to $193,150. Barely enough to refi and set up new escrow, pay title etc. Certainly not enough to pay realtor's fees and closing costs, Unless the house appreciates. Unfortunately that hasnt happened in most parts of the US. Ecspecially in the problem areas with the high foreclosures rates.

In Denver in the late 80's we had a huge problem with foreclosures. I don't recall any IO sold back then. The blame was shifted to the economy. Same thing happened here 15 years later, but this time its the IO loans. Nobody wants to point the finger at the real issues.

COAgent,
I am not sure how you conduct business but when I sold residential I did in fact counsel my clients against IO products for a primary residence. I explained the downfalls and dangers of IO loans and in fact would not recommend a lender that would recommend an IO product.

Sounds like you are an advocate of using an IO loan to purchase a primary residence.

BTW in you example you forgot to account for appreciation over the next 3 years and any upgrades the homeowner may have done to increase its value.

I don't think it is as much the I/O portion of the loan that is bad, it's the I/O combined with 100% LTV, and short term ARM's to buy a house you wouldn't traditionally qualify for. I/O financing was intended as a wealth management tool in financial planning, not a way to afford a more expensive house. The resets on the ARM's are going to cause a lot of trouble over the next few years. Especially the 100% LTV ARM's.

No one can deny that these programs have been pushed on consumers as a way to get a more expensive house. Check out all the ads on the web, these are still getting pushed.

Bigger loan ammounts + higher priced homes = bigger origination fees, and bigger agent commissions. It won't stop until someone puts the "brakes" on these products, and limits their use. Who will?

I think the 100% I/Os and the ARMs have been causing the problems......Around here ,you can see some subdivisions that offered that 'special financing' with I/Os and ARMs..every 1,3,5 years you can almost tell when the ARMs kick in and the rate ajusts....foreclosures go up.

Paul Oaks

I am not an advocate for the IO loans. If I was, is that a problem? It is my business practice to go over "affordability" with my buyers, not what is going to make me the most money.

I have a real issue with finger pointing. Us realtors need to take our part in getting buyers in a home that is affordable in the future. Think about it, if your client forecloses 3 years later, are they going to use you again? Doubt it.

It's easy to say mortgage brokers shouldn't have sold an IO loan. Maybe, maybe not. Why did the realtor let them buy that house?

And yes I did address the appreciation in my post, if you read it again you will notice I stated most parts of the country with foreclosure problems, are not appreciating. Such as here in Colorado. If every home appreciated we wouldnt be having this discussion about IO loans.

I read (somewhere) that relatively few IO loans were written here in Texas; I've been in the biz a while and have only closed 1 deal that involved an IO (wealthy client that wanted to purchase and move before putting their old house on the market).

As to how that relates to foreclosures: I'm not so sure it does. Our state has one of the lowest IO rates, yet one of the highest foreclosure rates.