by Calculated Risk on 6/10/2005 02:09:00 PM

MSNBC provides a table from LoanPerformance of interest only mortgages as a share of total mortgages for the 50 largest metro areas in 2004. Apparently many of these loans are both Interest Only (IO) and Adjustable Rate Mortgages (ARMs). As MSNBC cautioned:

"... borrowers may be able to buy a more expensive house than they might otherwise afford.

Trouble is, when borrowers do have to start making principal payments -- after anywhere from 2 years to 10 years -- the monthly payment could jump by up to 50%, or even more if the index for the adjustable rate rises as well."

MSNBC also quoted some recent data from BusinessWeek:

BusinessWeek Online has also obtained new data from Fannie Mae and Freddie Mac that lend credence to the LoanPerformance numbers. They show that, in April, going by dollar volume, interest-only loans accounted for 35% of the adjustable-rate mortgages in securities sold by Fannie Mae and 39% of the adjustable-rate loans in securities sold by Freddie Mac. That represents a sharp increase for both giants, which buy mortgages from lenders and then repackage them as securities for sale to investors.

As recently as January, 2004, only 10% of adjustable-rate mortgages in securities sold by Fannie classified as interest-only.

Yesterday Kash looked at the percentage of ARMs and suggested that it appears

"... people have decided to pay more for their house than they can afford with a fixed-rate mortgage."

And he concluded that

"we shouldn't find it surprising if millions of recent home buyers soon find themselves unable to afford to live in their own houses."

It is no surprise that a bubble state metro area like San Diego is at the top of the list. But, as a recent story noted, Georgia leads the nation in IOs. That seems unusual.

Interest-Only Loans Across the U.S. Metro Area Interest-Only Mortgages As Share of Total, 2004

San Diego 47.6%

Atlanta 45.5%

San Francisco 45.3%

Denver 43.4%

Oakland 43.1%

See table for next 45 metro areas: MSNBC article.