Page 1 of 8

Home

Mail

News

Sports

Finance

Weather

Games

Groups

Answers

Screen

Flickr

Mobile

More Carl Mail

Find A Home Must-See Homes Home Finance Ideas & Projects

7 home loans you thought had gone extinct

By Kirk Haverkamp 21 hours ago

Mortgage Rates San Franc...,

CA, 94102 Loan amount Loan type
$200000 30yr fixed Purchase

Peoples Mortgage Company

NMLS#6274

3.543% APR 3.375% Rate

Better Choice Loans

NMLS#236109

4.166% APR 3.990% Rate

Mutual of Omaha Bank

NMLS#403418

4.176% APR 4.000% Rate

Disclaimer

Featured Articles
3 Steps to an Easy Mortgage Approval I You don't hear much about certain types of mortgages these days. Option ARMs, interest-only, stated income, no-money down, teaser rates many of the most popular types of mortgages from the days of the housing bubble have virtually disappeared. But are they really extinct? Or have they simply gone into hibernation, waiting to emerge again when the economic climate is once again favorable for them? While some of these truly seem to be gone for good, others have simply retreated to a specific niche in the market. And still others are beginning to re-emerge after a period of dormancy. Here's a look at some of the better known "extinct" mortgages, along with what mortgage professionals have to say about their current status. Stated Income consolidated $50,000 of credit card debt through Moving? 5 Ways to Minimize Surprise Costs

Are these mortgages really extinct?

Sponsored Links
VA Home Loan Requirements
www.VAMortgageCenter.com Easy to Qualify - 0% Down. See If You're Eligible in 2 Mins!

HARP Refinance Loan 2.7%

HARP-Loan.FreeRateUpdate.com No Appraisal, No MAX LTV, 3.3 APR*. 1 Bank, Low HARP Rate, Get a Quote.

The VA Home Loan

Stated income mortgages, or "liar loans" as they were known during the housing bubble, were widely blamed for enabling many borrowers to get into mortgages they couldn't afford. They're called stated income because no proof of the borrower's income is required the borrower can simply state an income figure and the lender will accept it. These days, you can't get a mainstream mortgage a conforming loan backed by Fannie Mae or Freddie Mac, or one backed by a government entity such as the Federal Housing Administration (FHA) or the U.S. Department of Veterans Affairs (VA) without documenting your income. However, specialized lenders are beginning to deal in them once again.
www.VeteransUnited.com VA Home Loans - This is Our Focus. Pre-Qualify Online in 2 Mi t !

http://homes.yahoo.com/news/7-home-loans-you-thought-had-gone-extinct-180452639.html 11/1/2013

Page 2 of 8

Home

Mail

News Why? Sports Weather Games Groups Answers Screen BecauseFinance stated income loans have long been popular with self-employed

Flickr

Mobile

More Carl Mail

individuals who maximize the deductions on their tax returns, or who have substantial assets but whose income varies from year to year. As a result, their tax returns may not give a full picture of their financial state. "You may have a doctor who has $500,000 in income but only $50,000 on his return," said Bruce Spector, a loan consultant with Summit Funding in Reno, Nev. "So that's great at tax time, but when it comes to qualifying for a mortgage, they can't do that." A stated income mortgage allows such people to qualify on just their credit rating and assets, along with the appraised value of the property. Spector said stated income loans are making a comeback because, in today's "yieldstarved environment," where CDs and bonds are typically paying less than 1% interest, some investors are turning to privately funded mortgages in hopes of getting better returns on their investments. "They're looking for returns, they're willing to take that risk," he said. "There's money in that, so they're willing to look at the non-traditional mortgages." He said investment firms and private investors put together pools of money that they offer to mortgage banks and brokers to make available to borrowers. It's not a product that the larger banks typically offer these days, he said. Instead, they tend to stick to mortgages that can be guaranteed by an entity like Fannie Mae or the FHA. No Money Down It was pretty common to be able to buy a home with no down payment during the first half of the last decade. Some lenders simply didn't require them and you could even get a no-money-down conforming mortgage backed by Fannie Mae or Freddie Mac by taking out a "piggyback" loan to cover the down payment. These days, zero-down-payment mortgages are almost impossible for most borrowers to get. However, they're not completely gone. You can still get a no-money -down mortgage through the VA if you're a qualifying veteran or active-duty member of the military. Also, borrowers with low-to-moderate incomes may be able to get a USDA Rural Development loan with no money down to buy a modest home in a rural area or small community.
Network Yahoo - Zillow Real Estate Help / Suggestions Privacy About Ou Ads Terms

Angeles home Paradise for sale -bring your best offer Will Liberace's Las Vegas home see glory again?

Though zero-down-payment mortgages are still hard to come by, it's becoming much easier to get a mortgage with a small down payment. In fact, it's even possible now to get a conventional mortgage with only 3% down without going through the FHA, according to Richard Whitman, vice president of mortgage lending for Texas Trust Credit Union. [Looking for a mortgage without a huge down payment? Click to compare interest rates from multiple lenders now.] That's because mortgage insurers are becoming more comfortable with insuring those loans, he said. "If you've got a good credit score with 3% down, the [private mortgage insurance] isn't that bad," Whitman said, referring to the private mortgage insurance (PMI) required on conventional loans with less than 20% down. Whitman said you can still get a 3% down Fannie/Freddie-type mortgage even with a credit score in the 660-680 range these days, although the PMI will be fairly costly to someone with a score of 720 or better. But increasing the down payment to 5% will reduce the cost of PMI significantly, he said. Interest-Only

http://homes.yahoo.com/news/7-home-loans-you-thought-had-gone-extinct-180452639.html 11/1/2013

Page 3 of 8

Home

Mail

News During Sports Finance Games Groups on a Answers Screen the housing bubble,Weather it was possible for a borrower tight budget to get a

Flickr

Mobile

More Carl Mail

mortgage where they only had to pay the interest charges and nothing toward the principle at least temporarily. Eventually though, they had to start making principle payments or refinance into a new interest-only loan. When falling property values made it almost impossible to refinance, these people had to start paying principle and those who couldn't afford that lost their homes to foreclosure. These days, virtually no lender will let you buy a buy a home with an interest-only mortgage. There is, however, one place where interest-only loans are still found in home construction. Builders will take out a short-term interest-only loan to cover the cost of construction, which will then be converted to a fully amortizing loan when the home is completed and transferred to a new owner. "Those have always made sense for investors who wish to keep costs low during the first part of the loan, tie up as little money as possible," said Summit Funding's Spector. Spector said he's seen interest-only construction loans coming back to a certain extent, but doesn't handle them himself. He said such loans are available only through private capital/hard money lending, similar to how stated income loans are handled these days. Negative Amortization Going even beyond interest-only mortgages were negative amortization loans. On these mortgages, it wasn't even a requirement to keep up with the interest payments a borrower's monthly payment could be less than the interest charges, meaning that the mortgage balance, the amount owed on the loan, would actually increase negative amortization. The most common of these were Option Adjustable-Rate Mortgages, sometimes referred to as "pick-a-payment." With these, the borrower could opt for a monthly payment that was less than the underlying interest charges, digging themselves further into debt as time went on. "The Pay Option ARM had an adjustable interest rate, so while the borrower knew that they could make a tiny payment each month, there was the possibility that their interest rate would rise and the balance on their principal would increase even faster," said Sam DeBord, a managing broker with SeattleHome.com in Washington state. DeBord described Option ARMs as "the ultimate boom loan" and "a terrible loan for the average homeowner," but a potentially good one for savvy investors to use for short-term projects where they wanted to minimize their cash outlay. He said he's only written one such loan in his entire career, for a multi-million dollar property where the owner wanted to keep his assets free during a remodel and paid it off shortly afterwards. "If the Neg-Am had only been offered to highly-qualified borrowers, it wouldn't have been a bad product, but it was too complicated for the average homeowner and many made bad decisions in using it," DeBord said. After getting burned so badly on them in the downturn, it doesn't appear that lenders will be offering these types of loans again any time soon. ARMs ARMs are a type of loan that may seem to have disappeared after being wildly popular during the housing bubble years. In reality, they're still very much alive, though much less common than they used to be. However, some of their variations that were very common during that time such as the Option ARM discussed above have disappeared to the point where they are pretty much extinct.

http://homes.yahoo.com/news/7-home-loans-you-thought-had-gone-extinct-180452639.html 11/1/2013

Page 4 of 8

Home

Mail

News Though Sports Finance thinkWeather Answers they're Screen many people of ARMs asGames an "exotic"Groups type of mortgage, actually Flickr

Mobile

More Carl Mail

one of the most traditional. In fact, in many countries they're the main type of home loan. They're called "adjustable rate" because they start out at one interest rate for a certain period of time, say 5 to 7 years, then adjust to a new rate based on current market conditions a rate that could be significantly higher than the original one. Demand for ARMs has shrunk dramatically since the crash, but not necessarily because people viewed them as inherently risky. It's because the rates on fixed-rate loans dropped so low that ARMs had trouble competing. "The ARMs didn't dry up because they didn't want to do them anymore. They dried up because fixed rates dropped below 4%," said Charlie Walters, a Realtor with Walters Realty Group in Tempe, Ariz. "If rates go back to 6%, we'll see ARMs and we'll see a lot of them." What makes ARMs attractive is that their initial rate is usually lower than on an equivalent fixed-rate mortgage, allowing borrowers to minimize their monthly payments. But in recent years, the difference has been so small, most borrowers didn't see it as worthwhile, particularly when they could lock in a long-term rate at historic lows. Even so, ARMs still occupy a small slice of the market because of the advantages they offer a certain type of borrower. "Over the last few years, we're seeing a bit of the ARMs coming back, particularly 5/1 ARMs, for people who aren't planning to stay in the home for more than a few years," said TCU's Whitman. He said the loans are coming back in vogue for those borrowers because it doesn't make sense for them to lock in a long-term loan. Instead, they can get an ARM whose initial term matches the length of time they expect to stay in the home and save a bit on interest. [Considering an adjustable-rate mortgage? Click to shop interest rates from multiples lenders now.] Teaser Rates What got people into trouble with ARMs wasn't necessarily the fact the loans were adjustable, but some of the features that were often combined with them. One of the most common of these was the "teaser" rate, where borrowers would start out with a very low rate, but the loan would later reset to a much higher rate. Because these tended to be sold to borrowers who were poor credit risks, they easily got into financial trouble when the "teaser" rate ended and their payments increased. But the banks made enough off the loans to offset the high default rate, at least while home values were still rising. As an example, Walters said that if fixed-rate mortgages were carrying a rate of 6% for borrowers with good credit, lenders might bring in subprime borrowers with a teaser rate of 3-6%, but that might reset to 9% in a fairly short time. Perhaps 7% would default, but the banks made enough off the other 93% to make it worthwhile. But that all changed once home prices began to fall and the default rate increased. "The whole subprime market started melting down, the lenders starting losing money hand over fist, like wildfire," Walters said. "It was like a switch flipped." Walters said the basic rule of lending is that if the reward outweighs the risk, the borrower gets the loan. It's still that way today, he said.

http://homes.yahoo.com/news/7-home-loans-you-thought-had-gone-extinct-180452639.html 11/1/2013

Page 5 of 8

Home

Mail

News "It's Sports Finance Weather Groups they Answers Screen just after the housing bubble burst Games and the meltdown, just know those loans Flickr

Mobile

More Carl Mail

don't perform any more," he said. "The bottom line is, those things aren't coming back, probably never." Balloon Mortgages Somewhat akin to ARMs are balloon loans. These are where a borrower gets a loan at a low rate for a certain number of years, often seven, with payments based on a longer amortization, say 30 years. But at the end of the seven years the entire remaining balance comes due, hence the name balloon. The idea is that borrowers would simply refinance the loan at that point. But when home values dropped, many found it impossible to refinance and instead of simply facing a higher interest rate, they were stuck with having to pay off the entire loan. Like ARMs, balloon mortgages tend to offer lower rates than comparable fixed-rate mortgages and for the same reason the lender doesn't have to worry about being saddled with a low-rate mortgage long-term if rates rise in the future. They've also fallen out of popularity for the same reason as ARMs because rates on fixed-rate mortgages have been so low there's not much advantage to them. Balloon loans remain widely available, according to Patrick Palzkill, a real estate broker and mortgage originator with Beacon Rock Real Estate and Mortgage in Boston, Mass., but the current rate differential just doesn't justify it. "Those are still out there, but they're just not practical right now, he said, noting that balloon loans work best in an environment where rates are likely to decline. "No mortgage person worth their salt thinks rates are going to go down," Palzkill said. Truly Extinct? As for truly extinct mortgage types, Palzkill doesn't think there are truly that many of them. Risk is coming back into the market, he said, people want to borrow money and investors will lend it to them if they can make a profit. "Things haven't changed that much," he said. Already, he said, there are tough credit hard money lenders coming back in the market who'll offer a mortgage to someone with a 500 credit score if they're willing to put 30% down and pay 7% interest with two points upfront. "There're sharks out there who will take that," he said.

More from Credit.com How to Search for Your Next Home How to Determine Your Down Payment The First Thing to Do Before Buying a Home

Mortgage Rates San Franc..., CA, 94102

Loan amount
$200000

Loan type
30yr fixed Purchase

Peoples Mortgage Company

NMLS#6274

3.543% APR 3.375% Rate 4.166% APR 3.990% Rate 4.176% APR 4.000% Rate
Disclaimer

Better Choice Loans

NMLS#236109

Mutual of Omaha Bank

NMLS#403418

http://homes.yahoo.com/news/7-home-loans-you-thought-had-gone-extinct-180452639.html 11/1/2013

Page 6 of 8

Home

Mail

News

31 Sports Comments Finance

Weather

Games

Groups

Answers

My Screen Comments Flickr

Mobile

More Carl Mail

Popular Now

Newest

Oldest

Most Replied

3 0 Billy Wilson 27 minutes ago These type of loans should be extinct. We need to get back to the old tried-andtrue method of requiring and minimum 20% down payment on a real estate loan or a minimum down payment of 10% and PMI insurance required. No government entity should be permitted to insure any real estate loan that doesn't meet these requirements. The taxpayer should not have to bail out people who buy property More when they have little or nothing to lose if they cannot repay their loan. Expand Replies (1) Reply

0 0 Ron 2 minutes ago Part of the problem is we don't teach children how to manage money. They all know in first grade how to put a condom on a cucumber but we never teach them how to use credit to their advantage, what a credit card is, how to invest, etc. Maybe if financial management were taught throughout the 12 year education and induction process then we would have fewer financial crises. It might also mean More that students take out fewer and much smaller education loans. Reply

0 0 Marvin 19 minutes ago "You may have a doctor who has $500,000 in income but only $50,000 on his return," said Bruce Spector, a loan consultant with Summit Funding in Reno, Nev. "So that's great at tax time, but when it comes to qualifying for a mortgage, they can't do that."

This More"doctor" should go to prison for tax evasion, much less "qualify" for a mortgage
Reply

Jeff 53 minutes ago Do we never learn from history?

Expand Replies (3) Reply

3 0 the _truth 1 hour ago Is there anybody out there who still does not understand who actually calls the shots in this country? Reply

0 0 Gary 20 minutes ago I live in WAY less house than I could afford. I watch my friends go into self imposed slavery to buy a mcmansion. Reply

2 0 DONALD 42 minutes ago The federal reserve is "OWNED" by the very people who made all the bad loans and the wall street crooks who packaged the loans. The government (which is only lobbyists and special interests) will bail people out again for being so stupid to listen to realtors, wall street crooks and big banks. Your in the most corrupt country in the world - get use to it. Expand Replies (2) Reply

3 0 Sean 11 hours ago As rates go up these products will come back. Do you really think the banks are going to sit around and not make money? And how do banks make their money? LOANS. Especailly sub-prime loans. These are coming back don't believe the hype.By March 2014 the sub-prime market will be alive and kicking again. FHA is already doing loans for 580 credit score borrowers. That's right ladies and gents your US government is doing sub-prime loans as we speak. More Expand Replies (2) Reply

Chris 8 minutes ago

http://homes.yahoo.com/news/7-home-loans-you-thought-had-gone-extinct-180452639.html 11/1/2013

Page 7 of 8

Home

Mail

News

called stated income because of the borrower's income is Sports "They're Finance Weather Gamesno proof Groups Answers Screen required the borrower can simply state an income figure and the lender will accept it." Actually they were called Stated Income/"Stated Assets" loans. Meaning the More borrower had to have enough liquidable assets in order to qualify for the stated
Reply

Flickr

Mobile

More Carl Mail

0 0 Esprit F 10 minutes ago To me its pretty simple if someone comed in for a loan and does not have the assets to buy a house ect then its the bank responsibility to deny them a loan or else face criminal charges. Reply

View more comments

Share this

http://homes.yahoo.com/news/7-home-loans-you

Recommended for You Two Belgian castles left to decay

Yahoo Homes just published a slideshow by French artist Martin Vaissie, 25, showing abandoned castles in France and Belgium. Two of the castles he visited, Chateau Rouge
Spaces

Top Running Shoes for 2013

AdChoices

Save big on running shoes. Awesome selection and deals. Compare low prices, popular brands and more - fast!
Nextag Sponsored

Philadelphia Phillies Chase Utley Lists Upscale Condo for $4.3 Million
The sleek downtown condo served Utley and wife in their younger years, but now the family
Zillow

Oct. 30: Real estate heiress Ivanka Trump was born on this day in 1981
Ivanka Trump, the daughter of real estate mogul and general celebrity busybody Donald Trump, turns 32 today.
Spaces

Diane Kruger and Joshua Jacksons Home for Sale

The couple have listed their home for $1.519 million.
Zillow

Buy Judd Apatows Former Home for $3.495 Million

Apatow's former home is for sale.
Zillow

Gloria Estefan Renting Out Guesthouse for $30,000

The 4,500-square-foot rental is located on the property of one of the singer's two Star Island homes.
Zillow

Montlake Spite House in Seattle sells

You might think that a little wedge-shaped house built explicitly to aggravate someone would be a tough sell. Not in Seattle. Listed at $397,500, the home was just snapped up over the weekend, the real estate agent told Yahoo
Spaces

Photos: Montlake Spite House in Seattle sells (22

photos) Locals call it the Montlake Spite House, because the oddball Seattle home is believed to have been built out of spite. Listed at $397,500, the wedgeYahoo Homes

Oct. 28: Bill Gates custom-built home in Medina, Washington

Software tycoon Bill Gates turns 58 today. Because he's the world's secondrichest person (topped only by Carlos Slim, according to Forbes), you might
Spaces

Report: Tom Brady and Gisele Bundchen Buying in New York

http://homes.yahoo.com/news/7-home-loans-you-thought-had-gone-extinct-180452639.html 11/1/2013

Page 8 of 8

Home

Mail

reportedly put an offer on Games a $14 million, full-floor condominium. News The model Sports couple Finance Weather Groups Answers
Zillow

Screen

Flickr

Mobile

More Mail

Is Drew Barrymore Buying on Park Avenue?

The actress reportedly is in contract to buy a pricey duplex in the Big Apple.
Zillow

Carl Search Web

House of the Week: Rumored Rental to the Stars

The charming Hollywood Hills house has been rented by a number of stars over the years, starting with The Beatles.
Zillow

Report: Madonna Sells Beverly Hills Home for $20 Million

Madonna and ex-husband Guy Ritchie bought the home for $12 million a decade ago.
Zillow

Will This $0.70 Stock Hit $3.00?

AdChoices

Watch This Free Video to Learn How This $0.70 Stock Could Hit $3.00? Subscribe Now.
Do You Own This Stock? Sponsored

Oct. 24: On Chartres Cathedrals 753rd anniversary, heres a Telluride home with full-scale copy of its labyrinth
I found it to be kind of a meditative experience, and so I decided to put one
Spaces

Photos: A Telluride mansion with a full-scale replica of Chartres Cathedral's medieval labyrinth (29 photos)
On the 753rd anniversary of Chartres Cathedral's dedication , we're looking at a mansion for sale in Telluride, Colorado , that has a full-scale replica of
Yahoo Homes

Kerry Washingtons Former Harlem Home for Sale

There's nothing too scandalous about this Harlem brownstone.
Zillow

Inside Robert Pattinson's rather pretty $6.75M house

(52 photos)

As one might expect from a brooding heartthrob actor, the vicissitudes of Robert Pattinson's real estate choices are directly tied to his love life. After
Curbed

Robert Pattinson Officially Lists Los Feliz Home Once Shared with Kristen Stewart
It seemed to be only a matter of time before Pattinson listed his home for sale.
Zillow

Oct. 22: On Jeff Goldblums birthday, a look at Big Chill house (for sale!)
Actor Jeff Goldblum, who turns 61 today, spent a lot of time in one really gorgeous South Carolina home as a co-star of the hit 1980s movie The Big
Spaces

Photos: The house from 'The Big Chill' is for sale (22
photos) This historic home in Beaufort, S.C., played a starring role in the 1980s hit "The Big Chill." It's on the market for $3.5 million, marked down $1 million

Load more stories

http://homes.yahoo.com/news/7-home-loans-you-thought-had-gone-extinct-180452639.html 11/1/2013