"Piggyback loans -- so called because a second mortgage is piggybacked on to a first to compensate for a smaller down payment -- have become common in recent years as housing prices have appreciated. Approximately 42 percent of home purchase mortgage loan dollars involved piggyback loans during the first half of 2004, up from 20 percent in 2001. Piggybacks are particularly popular in high-cost areas such as California, where prices have outstripped incomes and borrowers are increasingly stretching to purchase properties."
Once again loosening of credit standards is a crazy thing.
"In fact, among the MSAs ranked in the top 10 in terms of market risk, 7 regions -- all of them in California -- had more than half of their mortgage lending for home purchases in piggybacks during the first half of 2004." Information on the likelihood of house price declines was taken from PMI's Economic and Real Estate Trends report, published quarterly and available at pmigroup.com/newsroom/publications.html."
These types of loans also contribute to the overheating of the local real estate markets. The fact that lendors are making them is that they are speculating on the house rising in value and the mortgage lendor will be left with an asset of real value.
No comments:
Post a Comment