Why Mortgages Blew Up
Other financial planners say an option ARM can be appropriate when borrowers expect a large inheritance, or where a spouse will likely to return to work and boost household income. Similarly, graduate students of medicine or law, who very likely will see their income rise rapidly soon after graduation, could make suitable candidates for these loans.
For similar reasons, interest-only loans, where the borrower has a choice to not pay down the amount borrowed, provide a certain level of flexibility.
But as most any financial adviser will attest, option ARMs don't make sense for the vast number of people who receive steady and predictable paychecks. For the most part, interest-only loans are considered similarly inappropriate for most borrowers, but were seen as less risky.
Nonetheless, such loans were handed out in great numbers over the past five years or so in great numbers. So what went wrong?"The problem is that [the negative amortization loan] was oversold," says Allen Fishbein, director of housing and credit policy at the Washington-based Consumer Federation of America.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV