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http://www.omniture.com --> Sections Home Page Local News AP News AP Entertainment Archives Business Classifieds Event Calendar Forums Life Opinion Obituaries Photo Gallery Readers Photo Gallery Sports Tempo Weather Special Coverage 2006 Britt Festivals --> Shop Our Valley AutoFinder HomeFinder JobFinder Search Our Valley Special Sections Distinctly Northwest Readers' Choice Homelife Magazine Joy Magazine Holiday Guide Oregon Golf Info Oregon Wine Info Other Publications Local Links Ashland News eSouthernOregon Newspapers In Education Personals Moving Here Movie Listings TV Listings Volunteer Customer Service Advertise With Us Media Kit Place Classified Ad Contact Us FAQ's Home Delivery Site Map --> Email Story to a Friend January 2, 2007 States issue warning on nontraditional mortgages Lenders are being told not to make interest-only type loans to borrowers who might default By Kirstin Downey The Washington Post WASHINGTON — Nineteen states and the District of Columbia have moved quickly to warn state-regulated lenders about the hazards to consumers from nontraditional mortgages. Tens of thousands of state-licensed lenders and mortgage brokers are affected by the advisories, also known as a "guidance." Such loans include interest-only mortgages and other arrangements where the borrower cuts monthly costs by paying back less than full interest and principal. The states are following closely behind federal banking regulators, who issued a sternly worded advisory in late September to the lenders they supervise, telling them they should not make these loans to borrowers who may be unable to repay them. Within 24 hours after the federal guidance was released, six states had issued similar warnings to their own lenders, a notable flurry of activity in a field known for its slow-moving bureaucracies. "They were ready for this; they wanted it," said Mike Stevens, senior vice president for regulatory affairs at the Conference of State Bank Supervisors, who said it was the fastest state-by-state regulatory rollout he had ever seen. "We had a national need to do this." Nontraditional loans, also known as "exotic" mortgages, once marketed to the wealthy as a cash-management tool, have expanded to the mass market because they allow borrowers to pay only the interest on a loan, or a partial monthly payment, without paying down the principal. In 2003, just 10.6 percent of new loans tracked by First American LoanPerformance, a San Francisco-based real estate information service, were nontraditional mortgages, but during the first nine months of 2006, about 34.1 percent of all borrowers used these loans to buy or refinance homes. In the Washington area, where housing prices have skyrocketed in the past five years, about 47.7 percent of loans originated in 2006 were nontraditional, vs. 10.7 percent in 2003. These loans became popular because they let borrowers stretch to afford homes. The concern is that some borrowers may not fully understand they face payment "resets," or upward adjustments after a set period, often three to five years. Regulators have noted that many consumers are unaware their payments could double or even triple when they reset. At a recent Consumer Bankers Association conference, some lenders marketing fixed-rate loans to borrowers with nontraditional mortgages said that 30 to 50 percent of the borrowers seemed unaware of the resets looming. Many economists now say the surge in these loans contributed to the real estate boom of the last few years. Regions that had the highest rates of nontraditional lending were also those areas where housing prices rose most quickly. Would you like to respond to this story? If so Click Here to visit our forums. Advertisement Copyright © 1997-2007 Mail Tribune, Inc. All rights reserved. Privacy Policy | Terms & Conditions | Website Feedback online casinos news Home Security Systems Online Casino Reviews Men's Clothing Fundraisers UK Homeowner Loans Discount Hotel Reservations Send Flowers Casinos Canada Texas Electric Choice Compare Electric rates in Texas Windermere Van Vleet Trunks, Footlocker Online poker at AbsolutePoker.com