As the rate for fixed mortgage loans continues its ascent, lenders are offering risky, non-qualifying home loan products that do not conform to Consumer Financial Protection Bureau standards.
The typical borrower who is interested in these loans is seeking to finance homes that may be bigger and pricier than they could afford with more traditional, simpler loan products. One such product now being gaining popularity is the interest-only adjustable rate mortgage, where borrowers pay the interest only for a set period before the rate resets and the principal is included in the monthly payment, per The New York Times. Another popular product is the income verification or “ability to repay” loan, for borrowers with wages paid in large lump sums rather than through regular earnings.
These types of loans may be a good strategy for a wealthy homebuyer, but some say they still carry the taint of overeager and unscrupulous brokers who pushed them on borrowers unable to repay them, creating a bubble in the housing market that burst in 2008.
“All of these types of loans make anyone who is in this business cringe,” said Tom Millon, chief executive of Capital Markets Cooperative, a network of 550 small mortgage lenders and servicers. Still, lending standards are higher, he said. We’re not talking about the no-asset, no-income, no-verification loans,” he said. “We’re talking about someone with a nontraditional income source that’s verified six ways to Sunday.”