5 ways mortgages have gotten better since the housing bust

Millennials who watched their parents or grandparents struggle with toxic mortgages, short sales and foreclosure might be reluctant to buy a home and get a mortgage themselves. But most of those bad old loans are gone. Although real estate is never risk-free, today’s traditional terms, strict guidelines and government-mandated forms can help millennials become safe and successful homeowners.

The differences are dramatic, says Greg Cook, senior loan officer for Platinum Home Mortgage in Temecula, California.

“If we go back 10 years, there were so many loan programs and most of them were, pardon my French, crap,” Cook says.

1. PAYMENT-OPTION LOANS

One of the riskiest old loans was known as the payment-option mortgage because it gave borrowers a choice of four monthly payments: a minimum payment, interest-only payment or 15-year and 30-year full amortizing payment, Cook says.

“It was a problem because almost everybody took the path of least resistance and said, ‘Let’s make the minimum payment.’ As a result, the loan balance got bigger.”

This increase in the loan balance is known as negative amortization.

When house prices depreciated, borrowers found themselves upside-down, owing more than their homes were worth. Many stopped paying and let banks foreclose.

Today, negative amortization loans are exceptionally rare, because of a federal regulation that grew from the housing crash: the qualified mortgage rule.

Lenders get special protections when they make qualified mortgages — and qualified mortgages must be fully amortizing, which means the payment must include enough inter-