I think that may be accurate at some level, but itâ€™s really a pretty stupid statement to make. Interest-only and even negatively amortizing loans do have a place in the market, and their absence is having a negative effect on todayâ€™s market.
The problem with those type of loans is they are very dangerous in the wrong hands they can have huge negative consequences. The people that I have worked with that were attracted to the negatively amortizing loans, etc. typically had inconsistent income. This would be self-employed people, general partners, commission only sales people, and people that have incomes affected by seasonal factors. These people benefit from having a smaller regular or required payment for these times when the cash-flow is low, but then can make significant principle payments when the cash is there. I think this is where the â€œaffluent borrowerâ€ label comes in; the reality is incomes that are less regular are also typically much greater as well. Interest-only or negativity amortizing loans given to borrowers who just want lower payment is a disaster in the making.
A few examples of borrowers Iâ€™ve done these type of loans for are: 1) a lawyer who took a draw of $40,000 a year as a partner but whose partnership distribution was in the mid six-figures, 2) a business owner whose business ran in the red for 10 months out of the year but made well over $200,000 during the Christmas shopping season, and 3) a high-steel construction worker who made over $150 an hour but would go long periods of no income when the weather was bad; he still made over $100,000 a year.