Greenspan Eyes 'Exotic' Mortgage Products

The increasing use of interest-only loans, option ARMs, and other "exotic" forms of adjustable-rate mortgages is raising eyebrows at the Federal Reserve Board."The apparent froth in the housing markets may have spilled over into the mortgage markets," Fed Chairman Alan Greenspan told a congressional panel. "To be sure, these financing instruments have their appropriate uses. But to the extent that some households may be employing these instruments to purchase a home that would otherwise be unaffordable, their use is beginning to add to the pressure of the marketplace." Mr. Greenspan said home prices in some local markets have risen to unsustainable levels and that speculative activity may be playing a greater role than in the past. However, the Fed chairman said he still does not believe that the aftermath of this housing boom will have much impact on the overall economy. "The U.S. economy has weathered such episodes before without experiencing significant declines in the national average of home prices," he testified.