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Some in the nonprime industry might argue that if borrowers wanted to build equity, they could just make additional payments toward principal on top of their interest-only payments. The repayment activity on option ARMs, however, has provided a good view of how disciplined borrowers are when they choose their payment.
Most borrowers choose to make the minimum monthly payment or the interest-only payment and are not making payments that would lower their loans' principal balance. Standard & Poor's, the credit-ratings firm, released a study this year that reported 75 percent of borrowers with option ARMs are choosing the minimum-payment option, which causes negative amortization. The 40/30 loan has that additional payment built into monthly payments.
When we consider the factors borrowers face, a loan with a 40-year amortization is a product that addresses market realities.
To put it in perspective, consider the 90- and 100-year mortgages in Japan. These products were intended to span several generations of a family, and they addressed the market conditions facing borrowers in that country.
The desire to own a home among people in the United States is strong, and the 40-year addresses it.
Brandie Young is the vice president of marketing at WMC Mortgage Corp., one of the leading wholesale lenders in the industry. WMC Mortgage specializes in flexible financing solutions in the Alt-A market. WMC Mortgage is a GE Money company. Visit the WMC Web site at www.wmcmortgage.com or contact the company at (800) 542-6508 or email@example.com.
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