Short Sales vs. Foreclosures

Dale Says:
December 29th, 2006 at 7:46 am
You are kidding, right? A “savings” to a buyer of 236 per month? How can you possibly say your are saving the consumer money, when the other 30 year loan at least offers a portion of the payment to go to the principle. You know darn well as I do that people opt for the interest only loan to barely squeeze into a house they normally could not possibly afford. They move in, have a kid or two, finance a new vehicle or two, and all of a sudden they are stuck hardly able to pay the interest-only house payment because they filled their life full of other liabilities. Of course, this is not your problem, since you are only selling them the interest only loan. Why these types of loans are not outlawed is beyond me…but I’ll save that rant for another day.

Marc Says:
January 9th, 2007 at 12:07 pm
Hey Dale,

Again, I’m talking about creating affordable payments. As you say, there are a lot of people who buy houses they can’t afford using “exotic mortgages”. I advise strongly against this, and I’ve refused to do loans for clients when I could see that they could not afford the the future payments. Putting clients into that situation is bad for the everyone: the client, the investor, and for me. Nobody wins.

Fortunately, not every buyer is as irresponsible as you describe. There are those who’ve managed their finances responsibly and whose income might be temporarily low–one spouse laid off, a recent relocation, a young couple with degrees just getting started–such that there income will rise predictably, making the amortized payment entirely affordable.

When those kinds of folks need a way to buy with an affordable payment, interest-only loans work very well. An interest-only loans create the flexibility to give the payment a shape, but certainly not to help the borrower you describe. By the way, I primarily use 30 year fixed rate interest-only loans.

Thanks for taking the time to post.
Marc