With the increasing popularity and the rising concerns about IO loans, analysts at Merrill Lynch set out to separate fact from the fiction. What they found was that there is no major difference between IO mortgages and other types of mortgages. Their findings were published in a report entitled, Interest Only Mortgages: Separating Myths from Reality.
The number of IO mortgages saw a drastic increase from 2002 to 2005 - moving from less than 2% of all subprime originations to almost 26%. This rapid growth appears to have capped out at about 23% of the origination share in 2006. Still, at slightly less than a quarter, IOs are still a relatively popular option for home buyers looking for alternative options, Merrill analysts said. Specifically, subprime IO loans have become popular in recent years as a way for borrowers to cope with rising home prices and the declining affordability of traditional mortgage products. Previously, Merrill said that IO mortgages were primarily used only in the high net worth borrower segment of the population.