Interest-only time bomb?

This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.

‘Interest-only’ mortgages, which allowed borrowers to defer paying principal for several years, thus keeping their monthly payments temporarily low, were used during the bubble years to get people into homes they couldn’t otherwise afford. Today, David Streitfeld in the New York Times explores whether those loans will kick off another wave of defaults as the interest-only period expires and payments jump.

The story notes that there are 2.8 million such loans on lenders’ books, totaling $908 billion. In the next 12 months, $71 billion of those loans will reset. The year after, another $100 billion will reset. After mid-2011, another $400 billion will reset, the story says. The open question seems to be whether that pace is gradual enough for stabilizing home values or some kind of workout plan to soften the blow.

The full story is here.

-- Peter Y. Hong