Yes, there are many posts since yesterday. Unfortunately, it seems that civility goes out the window when opinions differ.

I will try to summarize the facts of exotic loans in a short paragraph. I hope everyone will agree with these.

Exotic loan holders fall in 3 main categories:

1. Sophisticated buyers who don’t need I/O loans, but choose them as a financial planning tool. Believe me, it makes perfect sense for someone in a high tax bracket to take a larger loan that he/she needs to, and then pay lower taxes on dividends and capital gains (thank the government for that). Probably less than 5% of borrowers fall in this category. This was the only category that existed several years ago.

2. People who stretched to get into exotic loans, but will make it out alive, due to either (i) increasing incomes, (ii) having bought at lower prices in 2002-2003, (iii) managing to sell before it’s too late, (iv) cutting expenses and lowering living standars to “save the house”,
and (v) a combination of the above.

3. People who stretched to get into exotic loans, and won’t be able to make it, despite their best efforts.

I hope we all agree that these are the 3 main categories, and that #1 above is just a sliver (less than 5%).

Where we don’t agree is on the percentages of #2 and #3. Powayseller seems to thing that most buyers are in category #3. Some beg to differ. I, for one, think that both category #2 and category #3 are quite large. On this aspect, I think we can just leave it at that, we have to agree to disagree.