http://stream.publicbroadcasting.net/production/mp3/knau/local-knau-888393.mp3
Phoenix, AZ – The problem is a direct result of the ups and downs in the
economy. A lot of people could not afford to buy homes. So
lenders came up with sub-prime mortgages. Assistant Attorney
General Jennifer Boucek said that often involved loans with low-
interest teaser rates and payments designed to fit the borrower's
budget.
(It's affordable to them if that rate were to continue on down
the line. But what they don't fully appreciate is that that rate
will then soon go up very high, and there will be a balloon
payment very early on in the process.)
Boucek said lenders would then make it difficult to refinance
before that balloon came due in five years, including prepayment
penalties.
(So there was no way out. They would suddenly be trapped in this
thing where they started out thinking they were fine because they
were paying this low, up-front rate. They would suddenly be
notified 'You're going to have this big balloon payment very soon
but, hey, guess what, you can't get out of this: If you try to
refinance we're going to charge you a really significant
penalty.)
This measure bars some of the practices on sub-prime loans,
including negative amortization where loan payments don't even
cover interest -- and borrowers end up owing more at the end of
five years than when they started. But none of this will help
those who already have these mortgages. For Arizona Public Radio
this is Howard Fischer.