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I don't understand what the problem is with ARMs and interst only loans. People took out a lot of ARMs in 2004 because variable rates were very low back then. The big lenders like Countrywide, Home Savings, and Wells Fargo look ahead to where interest rates are likely to go and make sure people have enough income to handle upward adjustments in the future. There's nothing wrong with interest only loans for the first several years of a home purchase. They allow people to buy a bigger house and just pay if off more slowly. What do ARMs and interest only loans have to do with a "housing bubble"? These are just different kinds of financing methods.

There is no doubt that some people are suited to ARM loans, but there is a large percentage of people who took out ARM and other risky loans they can't afford. I was offered such a loan several years ago when I was considering a house I clearly could not afford. I figured I'd ride the real estate boom and just rent out some rooms if I had to. They said no problem, since I have good credit, they offered me a "stated" ARM loan in which my income level wouldn't even be considered. I backed out of the deal at the last minute once I figured out my mortgage would more than double (in a worst case scenario). Had I taken that loan, I would be one of the growing number of people who are slowly sinking as their ARMs adjust.