I am in banking(compliance), and the idea that lenders are writing I-O loans at 55% DTI is horrifying.
Historically DTI’s over 45% have been associated with bad performance (high defaults), and DTI’s of 50% and over have been considered predatory lending. In my opinion non-amortizing adjustables with DTI’s over 35% should be classed as HOEPA loans, which require special disclosures, enhanced documentation, a special waiting period and restrictions on loan terms.
I agree with those that say this is a credit bubble, and I expect lenders to take losses of over 600 billion on RE loans by 2009. Many borrowers will take a severe hit. Many of them literally will not have understood the risks or the terms of their loans.
IMO, these loan terms have amounted to a massive consumer pyramid scheme.
