Want an Interest-Only Loan? No Problem

Some mortgage lenders still haven't cleaned up their act.

Despite the financial-market fallout sparked by subprime mortgages gone bad, several banks continue to offer the types of loans that caused so much trouble in the first place.

At an open house this summer in Brooklyn, N.Y., for example, one could find financing offers from mortgage provider Countrywide Home Loans, a division of Countrywide Financial(CFC). Incidentally, shares of Countrywide have dropped from the low $40s in May to $27.35 on Tuesday.

One document featured a pitch for a Payment Advantage ARM (adjustable-rate mortgage), which showed a monthly expense of $1,962, noted as "minimum payment." Also included in the examples were estimates of monthly costs of interest-only loans, the lowest of which was $2,556, based on a rate of 5.875%.

What wasn't shown was the cost of a current 30-year fixed-rate mortgage, which would run $3,299, assuming a rate of 6.5%. That makes the payment almost 70% higher than the "minimum" listed. Countrywide declined to comment on the offer.

Countrywide, which the Mortgage Bankers Association ranks as the top mortgage provider by number of loans issued as well as by dollar volume, isn't the only big mortgage provider to offer such dubious financing products.

Washington Mutual(WM), the third biggest lender, also makes this type of loan, as does Bank of America(BAC), the fourth-largest mortgage lender. Pasadena, Calif.-based IndyMac(IMB) offers such a loan under the FlexPay name, according to the firm's Web site.