Exotic Mortgages Still Popular Despite Increased Risks Exotic mortgages still popular despite increased risks By Rachel Koning Beals From RealEstateJournal.com Americans are still willing to take a little risk to achieve homeownership. Call it the triumph of the exotic mortgages. Such loan innovations allow home buyers to put little money down and make low monthly payments. They've also poured fuel on one of the hottest and longest housing booms in the nation's history. But in the wake of the Federal Reserve's push to take away easy money, low interest rates and red-hot home prices have faded away. With them went the main conditions that made interest-only and other flexible mortgages worth their risks. So the consumer's love affair with such loans is drawing to a close now, right? Wrong. Far from just another financing fad, exotic mortgages have become such a fixture on the U.S. housing landscape that they've proven to be a key lever for many borrowers even as they have become a greater danger at the same time. "In our changing market, from unprecedented low rates to a steady rising of interest rates, these varieties of loan programs have become much more popular," says Bill Callanan, a partner with Mortgage Management Systems, a San Francisco mortgage broker. "But if you're scraping nickels together, they're not for you." While traditional long-term, fixed-rate mortgages remain the loan of choice for the majority of home buyers, more borrowers are also shopping for interest-only loans, pay-option ARMs and hybrid fixed-ARM loans. That's particularly true in high-cost housing markets, where taking one of those loans may be the only way to afford a house.