Freddie: IO Loans Could Have Credit Woes

The hot interest-only residential loan market could be headed for a fall.According to Freddie Mac's chief economist Frank Nothaft, interest-only loans -- which are widely popular in expensive housing markets -- carry potential credit problems because "no equity is being built up." Speaking at a Freddie Mac forecast conference, Mr. Nothaft said the mortgages carry "potential credit problems." However, he noted that Freddie Mac, as well as other organizations, have no hard data on IO loan volumes. (National Mortgage News is surveying lenders on this data point.) Freddie Mac places IO loans in the adjustable-rate category. In the fourth quarter, ARMs accounted for 33% of all loan production, according to the government-sponsored enterprise. Freddie estimates that all lenders funded $545 billion in residential loans in the fourth quarter, the worst quarterly performance of the year. (See the Jan. 17 issue of NMN for the full story.)