These are definitely different mortgages than they were before. Bu they are opening the door to riskier loan products again. Michigan based company Whole Sale Mortgage announced it will start offering an interest only loan products. Which as you may recall which is how some lenders during the last housing boom got borrowers into homes when they could not really afford. This time around there are far more safe guards.
Borrowers have to put down 20% down, some definitely skin in the game. They also have to have at least a 720+ FICO score which is above the national median. They must have no more than 42% debt-to-income ratio. And after 10years they have to start paying principal. Perhaps most important though borrowers must be qualified to afford the payments not just in the beginning but after those payments have adjusted higher. Still critics are concerned are these loans will be used for refinances. In this case the borrower wouldn't have to pay the 20% down they just have to show they had 20% equity in the home.
Now things start to get a little tricky especially with some home prices appreciating due to such tight supply. So let's say you get that loan now but then home prices fall back a bit you don't have much skin in the game as you thought. Well it's doubtful that they would fall 20% but you know never say never on the home prices, right?
We don't think you're going to see really risky products because federal regulations have put safe guards in place. You can't have those negative amortization products anymore, that were so awful during the housing boom. But it is opening the door to these riskier loans and they had been given to really high net worth borrowers over the last couple of years. Now being offered to the masses. Just to give you an idea during the housing boom more than 10% of the adjustable rate loans were these interest only. Right now it's about .03% we will see where it goes from there.