Regulators hit backloaded mortgages

The Washington Times reports:

Federal regulators found serious problems with backloaded mortgages that enabled buyers to buy high-priced homes in Washington and other booming markets, after examining the portfolios of six huge banks that make half the mortgage loans in the United States.
Sandra Thompson, a director at the Federal Deposit Insurance Corp., testified yesterday that some borrowers were not qualified to make escalating payments required under the loans, and the banks loosened their standards considerably to enable buyers to qualify, including "layering on" risks such as requiring no down payment or proof of income.
The problems raise the risk of defaults and foreclosures as the housing market stagnates, she told the Senate Banking, Housing and Urban Affairs Committee in Congress' first hearing on the new breed of mortgages, sometimes called "exotic" or "alternative" loans because they do not offer standard, fixed payments like those on 30-year mortgages.

Over leveraged will probably lead to over contraction in some housing markets.That's the problem will illiquid assets.