States Warn Mortgage Lenders on Nontraditional Loans

The fall-out from the glorious housing boom of the early 2000s – how much younger we all were then – continues on at a steady pace.  As a welcome to 2007, 19 states and the District of Columbia are warning lenders about the hazards, both to lenders and consumers, of nontraditional loans.

Such loans include interest-only mortgages and other arrangements where the borrower cuts monthly costs by paying back less than full interest and principal.

The states are cribbing their notes to lenders from a report issued by federal banking regulators back in September.  The strongly worded advisory made specific mention to lenders not to make these loans to borrowers who may not be able to make them.  Which, sure, seems pretty “duh” – but there was a time when mortgage lenders were seemingly handing out money to folk with fingers to hold a pen.

"We see a need to protect consumers who were not too savvy," Lily Qi, a spokeswoman for the D.C. Department of Insurance, Securities and Banking, told the Washington Post. "They didn’t understand what they signed when they signed on the bottom line. Some companies can be very aggressive in their marketing, and it can be misleading."