Sunday, April 03, 2005
Confronted with soaring home prices, Californians are adopting a "buy now, pay later" strategy on a massive scale. The boom in interest-only loans -- nearly half the state's home buyers used them last year, up from virtually none in 2001-- is the engine behind California's surging home prices.

But all that borrowed money might be living on borrowed time. When higher bills start coming due, Herron and hundreds of thousands of other homeowners in the state will have to find ways to cope -- or will have to sell.

In the most dire scenario, if they owe more on the home than it's worth, they'll simply walk away. Abundant foreclosures could spark a downturn in the entire housing market, leading to the long-feared bursting of what some call a housing bubble.

Interest-only loans, and other forms of so-called creative financing that are far riskier than the traditional 30-year fixed-rate mortgages, have allowed more people to afford homes in California even as prices have skyrocketed.

Interest-Only Mortgages - simply brilliant.... This can't end well.


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I am an attorney in Chicago. Politically speaking, I am an indepedent that tends to lean conservative on fiscal issues and progressive on social issues. I try to remain as unbiased and open-minded as possible. Please email or post any comments, and especially criticisms. If something I say is wrong, or you disagree - let me know about it!



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