After considerable negative press, the option-arm, or pick-a-pay loan continues to be the most touted by mortgage companies, mortgage brokers, and loan officers.
Despite the fact these types of loans have been highly scrutinized for their dangerous tendencies, the trend will likely continue because banks and mortgage lenders offer the highest yield spread premium from the sale of these risky mortgage programs, and they push brokers and loan officers to offer them to consumers with enticing rebates and incentives.
And without any government action, consumers will continue to bite at the appeal of lower monthly mortgage payments, not fully understanding the negative implications at stake.
With foreclosures due to rise, and housing prices dropping, the Fed really should feel the responsibility to step in and put an end to exotic mortgage programs that often confuse consumers and hide many of the unfavorable aspects.
If exotic mortgage programs such as the option arm aren’t completely outlawed, they should at least be limited to investors and/or non-first-time homebuyers. And tougher guidelines should be enacted to ensure homeowners are able to afford payments other than the minimum-payment option.
Many will argue that the option-arm loan is a fair and viable choice for homeowners, but the loan program wouldn’t yield such a high spread unless it was highly profitable. And if it’s profitable, consumers must be paying the price ultimately.