MBA Defends IO Loans

The Mortgage Bankers Association is defending interest-only and payment-option adjustable-rate mortgages, two of the hottest -- but most controversial -- loan products on the market today.MBA chief economist Doug Duncan said mortgage lenders, particularly depositories, will get into trouble with their regulator if they underwrite payment-option loans at the minimum payment. He also said mortgage bankers have a huge stake in these loans after they are sold into the secondary market because of buyback provisions and "reps and warranties." He noted that buybacks can be "quite expensive." The National Association of Realtors said June 22 that it was concerned about the growing use of IO and payment-option ARMs by homebuyers, and would be launching an educational outreach campaign later this summer. According to figures compiled by National Mortgage News, IO production accounts for 21% of all loans funded in the United States. The MBA can be found online at http://www.mortgagebankers.org.