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December 11, 2006
Cali Negative Amortization Mortgage Stats
There are some harrowing stats on so-called negative amortization (or "pay option") mortgages -- loans where your principal increases every period --in today's L.A. Times.
New negative amortization mortgages in California:
- 2003 -- 8 of every 1,000
- 2005 -- 1 in 5
- 2006 -- 1 in 3
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one thing to note, Paul -
the fact that the loans have the option doesn't mean that 1 in 3 mortgages are getting bigger each month.
Since having the option in your contract costs nothing, you'd be stupid not to have it. It's free insurance if you're out of work for a while.
Somewhere I've got a link to a Wells Fargo study that showed that only a fraction of the people with that option actually used it. (That being said, the margins are indeed poised for disaster.)
I'm of the opinion that while these products are widely derided, they may in fact prove to be a factor that mutes the sting of a bursting bubble.
Or maybe they just prolong the agony over several years.
Thankfully, real estate prices are still going up. Right? Hello?
This is hands down the scariest real estate stat I've seen yet...hard to believe.
Richard