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More 'Exotic' Loans Coming into Mortgage Portfolios

Even though federal regulators are warning about the risk of payment-option ARMs and interest-only loans, mortgage bankers aren't backing away from the products one bit.

According to exclusive survey figures compiled by Mortgage Servicing News, residential funders originated $218 billion in IO mortgages in the fourth quarter and $78 billion in POAs.

MSN and its affiliate, the Quarterly Data Report, found that IOs accounted for 25% of all mortgages funded in the fourth quarter.

POAs accounted for almost 9% of residential loans.

Regulators are particularly concerned about POAs, fearing that rate adjustments and negative amortization, might in time, overwhelm borrowers who misunderstand how the products work.

Mortgage bankers, for the most part, have defended the loans, maintaining that they are properly underwriting these "exotics."

Countrywide Home Loans, Calabasas, Calif., was the top POA funder in the fourth quarter, originating $24.5 billion, a 96% increase from the same quarter last year.

EMC Mortgage, Irving, Texas, ranked second in POA production with $6.2 billion (up 101%) and Bank of America third with $5.4 billion (up 70%). (EMC is owned by Bear Stearns and buys mortgages on a correspondent basis.)

Among IO lenders, Wells Fargo Home Mortgage, San Francisco, ranked first with $31.7 billion (up 234%), followed by Countrywide ($26.4 billion/up 46%) and EMC ($9.3 billion).

SNAPSHOT: Top Payment-Option Lenders

Firm 4th Q '05 Volume

Countrywide $24.5 Billion

EMC Mortgage $6.2 Billion

Bank of America $5.4 Billion

SOURCE: MSN/Quarterly Data Report

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