Yet another new acronym in the bewildering alphabet soup of home mortgage plans is the negative amortization mortgage (NAM).
With a NAM, for example, the borrower could get a home loan and diligently make payments for several years -- only to find that the loan balance, instead of being reduced, would actually have risen.
The reason, of course, is that the borrower's payments were not sufficient to cover any reduction in principal.
The advantages of this type of mortgage are that the owner has an affordable house in which to live, and that a higher sales price in the future would presumably square the account for both borrower and lender.
The NAM and other innovative loan instruments were under study here by members of the Saving Association League of New York. The sense of the meeting indicated that thrift industry executives will turn increasingly to experimental mortgage loans that contain provisions allowing more frequent adjustment of interest or loans that permit the lending institution to participate in any future appreciation of the property.
But if alternative loans fail to create sufficient profits for thrift institutions, the S&Ls are likely to "lose interest in housing" and materially reduce their role as originators of home loans, said Austin S. Murphy, chairman of East River Savings of New York.
Significantly, the bulk of the sessions during the four-day convention, dealt with customers services other than home loans, ranging from credit card issuance to installment loans for pleasure craft, clearly indicating that if the industry is pressured to abandon its historic role in home loan lending, it will be prepared to do so.