"It's a mixed bag; it's good that consumers have choices, but the other side of the coin is that it's more confusing and complex," said Jack M. Guttentag, the Robert Morris professor of banking at the Wharton School.
Lenders are pushing everything from "yuppie mortgages," which have payments tied to biweekly wages, to reverse-annuity mortgages designed for senior citizens, which allow home buyers to borrow against the equity in their homes.
Lenders even offer new twists to old products. They'll let you convert your adjustable-rate mortgage to a fixed-rate loan or guarantee you fixed monthly payments on your adjustable-rate loans. They might even knock off a point or two, equal to 1 percent of the loan amount, in loan-origination fees if it will mean selling you a mortgage.
The reason for this proliferation in mortgage types is twofold. First, even as the recent rise in interest rates has scared some consumers away from the housing market, it has prompted lenders to come up with products to bring them back, such as adjustable-rate mortgages that offer lower starting rates than fixed-rate loans. Traditionally, the consumer prefers the bread-and-butter security of a fixed-rate mortgage - until interest rates start rising.
Also at work is some pretty keen competition among lenders. In 1982, legal and regulatory restrictions on lenders were removed and out came a flurry of new adjustable-rate mortgages. A lack of consumer sophistication and high interest rates brought a rash of foreclosures and defaults on many adjustable- rate loans.
With the drop in rates in the mid-'80s, loan losses have fallen, and business is booming for lenders. In 1986, the industry set a record by lending $450 billion, a trend that has carried over into 1987, largely because of the low rates earlier this year, according to Fannie Mae, the Federal National Mortgage Association, a major buyer of mortgages from lenders.
And more lenders than ever before are getting a piece of the action.
