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Nontraditional Mortgages Seen as Playing a Vital Role
 Debunking media reports warning of the dangers of non-traditional mortgages, Angelo Mozilo, chairman and CEO of Countrywide Financial Corp., told industry professionals attending the NAHB Fall Construction Forecast Conference in Washington on Oct. 25 that these instruments are playing a vital role in helping consumers take advantage of the financial benefits of homeownership.
“Nontraditional mortgage products are important,” said Mozilo. “Today’s buyers are sophisticated. They know they won’t be living in a house for 30 years, so they figure why pay a premium on their mortgage. Borrowers are using these loans as a tool to save money for their next purchase. They pre-pay loans long before they reset. People are managing these loans quite well.”
In recent years, consumers have been flocking to such non-traditional mortgage products as interest-only loans, where the borrower does not pay down the principal. Other popular home loans include payment-option adjustable-rate mortgages (ARMs) that allow buyers to decide how much to pay each month, including a low-cost choice that provides the option of paying neither the principal nor the full interest.
These loans are designed to help prospective buyers become home owners, but critics charge they have raised the specter of widespread “payment shock” when the loans are reset and the borrowers are faced with hefty increase in their monthly costs.
With the share of the overall ARM market now at a record 40%, Mozilo said lenders need to play a bigger role in educating the consumer on the advantages and risks of non-traditional loan products, while stressing that there is “no evidence to show these are unsound loans.”
“These products are not for everyone,” he said. “They are for sophisticated buyers. The fear of 15% negative amortization or people shocked at a loan reset won’t happen. These loans are being paid off at a 30% rate and they are not going to reset or fully amortize.
“But while the level of sophistication is as advanced as ever, consumers still need to be educated. As lenders focus on empowering borrowers to make better decisions to meet their financial goals, they should educate consumers on how to manage credit and understand the home buying process. This is absolutely essential to lower homeownership barriers to the American people.”
In addition to calling for new initiatives to provide consumer financial education, Mozilo said federal and local policymakers should take the following steps to help more Americans become home owners:
- Decrease land use restrictions
- Update building codes
- Speed up permitting and inspection processes
- Focus efforts on providing housing tax credits or deductions that will benefit the broadest group
- Continue efforts to enact FHA reforms
- Provide home finance opportunities to all taxpayers
Photo by Morris Semiatin
 Want to Know the Housing Starts Through 2015?
Find out in HousingEconomics.com’s Long-Term Forecast.
HousingEconomics.com includes downloadable Excel tables featuring the housing starts forecast, GDP, demographics and more.
 NAHB Kit Gives Builders Back-to-Basics Tips in Cooling Market
With the current cooling of the nation’s housing market expected to persist into the middle of next year, NAHB has developed a comprehensive online toolkit geared to providing association members with information that will help them prosper in today’s changing business environment.
To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar.
For assistance, call the NAHB Member Service Center at 800-368-5242.
To learn more, visit www.housingeconomics.com.
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