MarketWatch reports on home loans. "Homeowners don't fully understand the risks associated with taking on alternative mortgages that allow interest-only payments or that eat into the equity in a home, federal officials told senators. The FDIC found that exotic loans were more prevalent in the housing markets with the biggest price increases, and suggested that the loans were both a cause of and a reaction to the housing boom."

"'The greater availability of flexible mortgage structures probably allowed price increases to outstrip growth in incomes to a greater extent than would otherwise have been the case," said Sandra Thompson, at the FDIC."

"About 75% of borrowers who have a payment-option loan make only the minimum payment, said Kathryn Dick, deputy comptroller of the currency. About a fifth of home buyers owe more than their home is worth, said Sen. Paul Sarbanes."

"Wells Fargo CEO Dick Kovacevich said Monday that the nation's housing slowdown is a positive development. 'We were getting into bubble territory,' Kovacevich said. 'As everyone knows, when a bubble bursts, the smaller the bubble, the better it is.'"

"Kovacevich said the bank has avoided controversial mortgage products such as option ARMs. 'You're taking risks we believe are inappropriate,' he said of the mortgage industry."

"Washington Mutuals COO, Steve Rotella, said that the current environment in the banking industry is 'difficult' and is expected to remain 'very difficult' on the revenue side for some time."

"WaMu has reduced the number of mortgages it underwrites in the subprime area of the mortgage market, where borrowers have less-than-perfect credit scores. 'You know, we've seen increasing delinquencies in that business in general..which is not unexpected, given the maturation of the portfolio but also the health of the market right now,' he said."

"WaMu has also sold 'the vast majority,' roughly 70%, of its option-ARM mortgages, which are considered among the most susceptible to defaults, to the secondary market. 'So, clearly, if there were a significant, major national decline in housing, it would have an impact on us,' Rotella said. 'but we feel we've taken the actions to mitigate that.'"

From Realty Times. "Question: I read your column about false advertising and want to share my story and ask for advice. We own a home in California and a loan agent contacted us and we ended up refinancing this loan to a new loan with negative amortization with a rate of 1.45 percent."

"After making the first two payments, we noticed that our mortgage balance was increasing by $2,000 each month. There is a prepayment penalty of 15 percent in the first year, ten percent if we refinance in year two, and five percent in year three. Can you please advise us as to how to get out of this situation?"

"Answer: Well, this is a tough one. Your letter is a perfect example of a homeowner taking out a complex mortgage program without having any idea of what it is or how it works."

"The thing that puzzled me about your letter was that fact that you could have afforded to continue to pay the interest on your previous loan. Why did you refinance a 5.50 percent mortgage, which is well under current market rates?"

"Whether or not the loan agent completely and willfully misled you is up for question. What's clearer is that you signed up for a loan without really knowing anything about it."