With mortgage lenders like New Century Financial Corp. introducing 40-year mortgages to their customers, supply is seen growing in the sector going forward.

Although not seen as presenting significant additional risk versus 30-year mortgages, tiering and adverse selection is expected as 40-year borrowers typically have a lower credit profile, even compared to I/O mortgages. In fact, there is some anecdotal evidence suggesting that some lenders are offering borrowers deemed ineligible for an I/O the 40-year product instead.

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