This United Features Syndicate article has the latest twist on interest only loans. "A relatively benign form of interest-only mortgage is gaining popularity as the loan of choice among buyers who have affordability issues. The newer type comes with fixed rates that can never change. Borrowers pay only interest for the first five, seven or even 10 years. When the initial term expires, the payment increases to an amount that allows the borrower to pay off the balance over the loan's remaining years."

"'It's a very low-risk mortgage,' says Doug Duncan, chief economist at the Mortgage Bankers Assn. 'It's essentially tax-deductible rent' for the first few years, Duncan said. And by the end of the interest-only period, household income should have grown enough that 'if the borrower has been reasonably prudent, he should be well-prepared' for the big jump coming in his or her house payment."

"If you stretched to get into the house and were betting on appreciation to keep you afloat, you could run into a serious problem."

"'Even with your eyes wide open, you can still get hammered,' Keith Gumbinger, VP at a mortgage information firm warns. He suspects that most interest-only borrowers anticipate either selling their homes or refinancing them before the interest-only period expires."

The Orange County Register. "ECC Capital has bet everything on borrowers with a history of bad credit. And it worked, for a while. Now, the company is doing everything conceivable to stem losses. The real estate investment trust has laid off 40 percent of its workers, canceled dividend payments to shareholders, and its top managers said they are working without pay."

"ECC's public filings show a pattern of lending that appears to ignore whether its borrowers can repay their loans."

"Nearly half of ECC's loans last year were made to people who did not demonstrate their income, traditionally a key measure of a borrower's ability to repay a loan. And it said one-third of its loans made last year were exceptions to its own underwriting standards."

"By comparison, 43.7 percent of New Century's borrowers last year did not prove their income. The company also made loans with low introductory rates. ECC sells its loans to investors as bonds, a common industry practice. Until last year, such bond sales were highly profitable for lenders."

"But the ability to sell most loans at a profit encouraged lenders to stop worrying about whether borrowers could repay them, critics say."

"Another factor: banks and mortgage companies wanted to keep the lending boom going even as interest rates began rising in 2004. Critics say lenders responded by lowering their underwriting standards. They also pushed loans with low introductory payments that spike later. All designed to keep people buying homes."

"'For several years there has been no standard for loan underwriting,' said Jeff Lazerson, president of a Laguna Niguel-based mortgage brokerage. 'Every lender liked every loan.'"

"Subprime lenders also do a lot of home loan refinancing. Their borrowers tend to do 'cash-out refis,' in which a homeowner refinances for a greater amount of their loan balance, pocketing the difference as cash. Essentially, subprime lenders want owners to view their homes as cash machines."

"ECC's gamble backfired. The company lost $64 million last year and $6 million early this year. It got hit by investor panic.' "Investors who buy bonds backed by mortgages got worried last year about credit risks in the market, said Scott Valentin, an analyst with Friedman, Billings, Ramsey & Co. 'It happened very quickly in the fourth quarter,' Valentin said of the investor shift. He said ECC had to sell loans at a loss."

"Valentin said ECC is taking the right steps to become profitable again, but it's too early to say if more cost-cutting measures are necessary. The company needs fewer workers because it won't be doing as many loans to very low credit borrowers, he said."

"'That's the right decision to make,' Valentin said. 'Why originate loans at a loss?'"