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Consumers cautioned about specialty mortgage products

National Mortgage Professional
Mar 24, 2014

Consumers cautioned about specialty mortgage productsMortgagePress.comspecialty loans, abusive lending practices, consumer education

The National Association of Realtors (NAR), a real estate trade association, and the Center for Responsible Lending (CRL), a non-profit research and policy organization that seeks to protect homeownership and family wealth by working to eliminate abusive lending practices, have issued a brochure, "Shopping for a Mortgage? Do Your Homework First." The publication is part of a consumer education campaign by NAR and CRL addressing specialty loans and abusive lending practices.

The brochure helps consumers understand conventional loans such as fixed-rate and adjustable mortgages, and more exotic loan programs such as interest-only mortgages, 40-year fixed-rate mortgages, negative amortization loans and option payment adjustable-rate mortgages. For example, the brochure warns homebuyers that monthly payments on some types of specialty mortgages can increase by more than 50 percent when the introductory period ends.

"The growth of the specialty mortgage market has helped many borrowers finance the American dream of homeownership, but these mortgages come with risks," said NAR President Al Mansell. "Consumers are susceptible to loans with monthly payments that can spike dramatically, or that actually increase the amount they owe on their home."

According to "The State of the Nation's Housing 2005," issued by The Joint Center for Housing Studies of Harvard University, one in four home loans in 2004 was financed with an interest-only mortgage. Three years ago, these mortgages comprised only a few percentage points of the total mortgage market. With an ever-increasing number of homebuyers financing their home purchases with specialty mortgage products, NAR and CRL felt it necessary to begin educating the public about the risks and benefits of these mortgage products.

"We're warning homebuyers to approach these new mortgages carefully," said Mike Calhoun, general counsel of the Center for Responsible Lending. "They should be cautious about accepting a mortgage they can't afford. These mortgages can be devastating for families who are stretching their budget to buy a home."

Topics covered in the brochure include common types of specialty mortgages, the major risks involved, questions to consider, and helpful steps to take before financing a home.

"Shopping for a Mortgage? Do Your Homework First" is available on both the NAR and CRL Web sites as a downloadable Adobe PDF file.

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Mar 24, 2014