“Exotic” non subprime mortgages could also get crunched

Interest-free mortgages and other so-called “exotic” mortgage offerings could also face trouble.

Not as risky as subprime loans, they’re still definite more risky than more traditional mortgages. And the bursting of the housing bubble, especially in California and elsewhere on the West Coast, could spell trouble.

In California, a housing downturn in San Diego, Sacramento and other markets is already pressuring many exotic-mortgage holders — and not just subprime borrowers — to default on their loans or sell their homes, according to Paul Leonard, director of the Durham, N.C.-based Center for Responsible Lending's office in Oakland, Calif.

Even if this sector of the market takes just a mild ding, it reinforces perceptions of a shaky mortgage sector of the economy.