CAMB: 40-year loans to offset affordability crunch, higher rates.

Expect mortgage rates to reach an estimated average of nearly 7 percent for 30-year FRMs, while 40-year FRMs will become an important loan product option in 2006, predicted the California Association of Mortgage Brokers (CAMB), Folsom, California.

The CAMB Annual Mortgage Forecast also predicted that housing affordability will continue to be a critical issue in California in 2006, even though home prices are expected to stabilize.

"A moderate increase in mortgage rates should not concern homebuyers," said John Marcell, CAMB president. "However, it is alarming that the housing-affordability crisis will continue, making it difficult for first-time homebuyers to qualify for adequate financing."

In its fourth annual membership survey, CAMB identified a majority, or 60 percent, of members who said they believe 40-year fixed-rate loans will be more economical for homebuyers in 2006. According to the forecast, other popular mortgage products will include reverse mortgages, 100 percent financing and adjustable loans with low "start rates."

More than 70 percent of those surveyed said they believe that while alternative loans may be a solution for some homebuyers, they can be risky for others. CAMB warned consumers to make sure they understand all the terms and conditions of a loan before signing any documents.

"As homebuyers prepare for 2006, they must be educated about which loans will work best for their financial situation," said Marcell. "Alternative loans make the dream of homeownership a reality for some consumers, but it is important to realize that they are not for everyone and there can be pitfalls."

The CAMB survey also found nearly 40 percent of respondents believe home prices in California will increase "somewhat" and affordability will get "a little worse."