Reply #5: Greenspan Concerned About Risky Mortgages

[ozymandius]

Federal Reserve Chairman Alan Greenspan is turning up the volume on his warnings about the potential perils of certain risky mortgages if the high-flying housing market loses significant altitude.

There are signs some companies are getting the message. A few have begun scaling back some types of those mortgages or making them less appealing by raising costs.

Greenspan mostly is worried about homeowners who took out an interest-only mortgage or option adjustable-rate mortgages to buy property they otherwise could not afford. Borrowers and lenders holding such loans could get clobbered if housing prices drop or interest rates rise.

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These mortgages are appealing to people who need cash for other expenses. But it also exposes them to far greater risk — if housing prices drop, their loan could be worth more than their property. If interest rates rise, their loan will become expensive to pay off.

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