9Pick-a-Payment Mortgages: A Toxic Product of FDIC Insurance Coverage
ONE OF THE MOST DESTRUCTIVE PRODUCTS IN THE FINANCIAL meltdown was pick-a-payment or negative-amortization mortgages. Pick-a-payment mortgages allow a borrower to pay less than the interest due each month, so the amount owed can increase over the life of the mortgage. This is obviously in contrast with a traditional mortgage product, where the borrower pays some principal each month so that the balance due on the mortgage is systematically paid off.
As an example of a pick-a-payment mortgage, suppose that when a young couple purchases a house, the interest on the loan is $1,000 a month, but the couple is required to pay only $750 a per month. If they make only the minimum ...
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