Magazine article Mortgage Banking

Greenspan Sharpens Warning about 'Exotic' Mortgages

Magazine article Mortgage Banking

Greenspan Sharpens Warning about 'Exotic' Mortgages

Article excerpt

TAKING HIS RECENT WARNINGS ABOUT THE potential perils of the housing market up a notch, Federal Reserve Chairman Alan Greenspan declared that housing's apparent froth "may have spilled over into the mortgage markets" in the form of "exotic" home financing.

Addressing the Washington, D.C.-based American Bankers Association's (ABA's) Annual Conference via satellite in September, Greenspan noted that the dramatic increase in the prevalence of interest-only (IO) loans, as well as the introduction of "more exotic forms" of adjustable-rate mortgages (ARMs), bear watching.

While such financing vehicles "have their appropriate uses," Greenspan cautioned that some households may be using such loan products to purchase a home that may otherwise be unaffordable to them--thereby exposing themselves and the market to much greater risk.

"In the event of widespread cooling in house prices, these borrowers--and these institutions that service them--could be exposed to significant losses," said Greenspan.

The pace of turnover of existing homes--particularly second homes for investment or vacation purposes--has quickened in recent years, which has contributed to the house price surge, said Greenspan. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.