It's stupid to be talking about foreclosures when something could have been done to prevent it before the loan was obtained! All of a sudden everyone cares!   It is interesting that during the last few years no one in real estate cared to talk about the types of loans that many home buyers were using.  I learned a long time ago that it isn't wise to drive a car foreward by looking in the rear view mirror only.  No one cared to ask if this was a wise at all, or even commented that it may be financial suicide.  It is funny now that real estate in flux, everyone is commenting about it!  You cannot avoid reading about it or hearing about it all day long.  It is the topic on Wall Street, stocks, home sales, foreclosures, investments and mortgage company failures!  There is talk on the newlines about the need of Government bailouts in the forms of the Federal Reserve dropping the discount rate, and more.  Some heavy duty stuff here.  Where were the calls of caution when it was taking place?  How come no one cared then when marginal buyers showed up in busloads for risky loans without any of their own money,,,it was OK then?  I mean anyone knows that an Interest only loans is pure risk! I remember in school learning about the 30 year fixed rate loan with Principle Interest Tax and Insurance PITI.  It was really created after the Great Depression to prevent a repeat of foreclosures of the Interest only loans so common just a decade before throughout the 1920's.  The difference then was the mortgage borrower had to put down at least 30% unlike nothing today.

An Amortized 30 year mortgages is also referred to as a "budgeted loan!"  It allows the borrower to repay the borrowed princliple in a simple amortized mortgage.  It provides for the payment of Interest on the outstanding principle, and allow the accumulation on a 12 month basis an escrow of tax and insurance. At the end of the 1 year accumulation of taxes and insurance...there will be money aside for the annual taxes to be paid in full, and the funds will be disbursed for the annual Insurance premium.  In this sense , a thirty 30 fixed rate amortized mortgage is a very smart loan.  It has a built in mechanism to pay taxes (so there is no defulat and seisure of the property if the tax bill is not paid, and if some destruction befalls the property that the lender is covered by an insurance policy.  The fixed amortized loan was also smart as it allowed for a stability and predictability of payment.)  (Unlike periodic adjustments in Adjustible Rate Mortgages and the pay in full principle demands of an Interest only loan.)

So the payments of a 30 year fixed rate mortgage in theory are identicle and predictable for the 360 payments  This is why there were ceated!  They were designed to replace the interest only mortgage. There was a time where the reasonably priced fixed rate loan was always the product of choice for consumers. (An interest loan pays interest only for the full life of the loan, never really touching the principle during the life of the loan which is around 5-10 years)  When the pre-determined term period is over, the principle must be paid in full or refinanced again.  The problem arises in our current market is that with teaser rates on sub-prime and Alt-A loans is that the borrower does not qualify to refinance their own loans, and in some cases the value has declined, and since these are now 100% financed loans the scenario is compounded with a negative equity position.  It really makes you stop and think "What was everyone thinking in the last few years?