Government Restrictions on New-Breed Mortgages?

Kirsten Downey of the Washington Post recently spilled the beans that the government might like to curb some of today’s more creative mortgages:

Speaking to the New York Bankers Association, John M. Reich, director of the Office of Thrift Supervision, warned that some lenders are making it too easy for unsophisticated borrowers to take on risky nontraditional mortgages that they may not fully understand. Reich said regulators are “closely monitoring” the growth of loan types in which the payments can suddenly double, creating a payment shock that could force borrowers into foreclosure if housing values were to fall and could also cause financial losses for the lenders who make the loans.
Reich called the increase in such lending troubling. He noted that regulators are crafting a specific warning to the industry, known as a guidance, that will restrict the use of these loans. It could be issued within the next few months.
But a regulatory crackdown on the loans, known as interest-only and option mortgages, could prove problematic for some pricey real estate markets, such as the Washington area, where buyers have become increasingly dependent on such loans.

(via the Matrix)
I have mixed feelings. First, as a real estate agent, I sometimes see people “over-extending” themselves to purchase homes that put them in finacially precarious situations. The hybrid mortgages that banks have developed have increased buying power and greatly contributed to the rapid escalation to historically record prices.
In an effort to climb aboard the “appreciation train,” many buyers have used interest only products where rates may adjust as frequently as every month.
I myself bought a second home that way. But I’m selling that home ultimately because the mortgage makes me uncomfortable. I couldn’t have purchased that 2nd home with a standard 30 year fixed rate mortgage.
That said, I don’t believe that the government should get involved in telling you or me how we should spend our money or in this case, from who and under what terms we may borrow money. The pressure is on us to be smart consumers.

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