FTC Conference Speakers Weigh in on Exotic Products

Sharply divergent views of so-called exotic mortgages were presented at a Federal Trade Commission conference today to assist the consumer watchdog agency in understanding interest-only, option-arm and 40- and 50-year loans.Allen Fishbein, of the Consumer Federation of America said that while interest-only borrowers tend to have higher incomes and credit scores then those that choose traditional loans "many" have only average or even weaker scores. But even with higher scores, Mr. Fishbein charged that credit scoring does not accurately measure the ability of some borrowers to repay given the risk involved. Robert Broeksmit, president of Chevy Chase Bank, a Maryland savings bank, said the majority of lenders qualify borrowers at the fully indexed rate. He also pointed out his bank's borrowers with interest-only loans tend to pay their loan balances down by a greater amount then those with fixed payments. Stella Adams, executive director of the North Carolina Fair Housing Center, said, exotic arms are not appropriate for subprime borrowers. "If they can't manage their money to stay in prime, they have to recognize that they can't manage their money well enough to handle these loans." One thing most of the two dozen speakers agreed on is the need for financial education. "Few borrowers have any idea of their financial health," Ms. Adams said.