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.
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