Greenspan is not worried about the Real Estate market
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However, he did raise a valid concern over those that use exotic mortgages that could expose the homeowner to risk if the market turned down for any period of time.
Federal Reserve Chairman Alan Greenspan on Monday warned home buyers to be wary of exotic mortgages that allow them to hold down monthly payments or defer principal payments in the early years.
If the red-hot housing market cooled off, Greenspan said, “these borrowers, and the institutions that service them, could be exposed to significant losses.”
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Greenspan’s warning came as sales of previously occupied homes rebounded to a near-record height and their prices reached a new peak, according to a report released Monday.Although the central bank chief criticized the growing use of “interest only” mortgages and other risky loans that allow buyers to afford expensive homes through lower initial payments, he took comfort from a Fed estimate that most homeowners held mortgages equaling less than 90% of their home’s value.
“The vast majority of homeowners have a sizable equity cushion with which to absorb a potential decline in house prices,” Greenspan said in a speech beamed by satellite from Washington to an American Bankers Assn. convention in Palm Desert.
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