Buyers latched onto mortgages with all kinds of exotic teaser rates to be able to afford the soaring home prices that sellers were demanding during the boom years. Now that the situation is reversed, buyers are demanding cash payments and other incentives that may be artificially propping up sales prices – suggesting that the market downturn could be even more pronounced than has been reported.

Offers abound from sellers willing to pay closing costs, several months of mortgage payments and, in some cases, cash. Buyers are taking the incentives, and economists say the practice could be inflating reported prices and distorting our view that the market is enduring a significant correction. Fears that overextended homeowners would default on mortgages led banking regulators last month to direct banks to explain the risks to borrowers from interest-only and other nontraditional mortgages, which had helped many home buyers buy expensive homes during the boom. The Government Accountability Office told Congress last month that from 2003 to 2005, nontraditional mortgages rose from less than 10 percent of all mortgages to about 30 percent.

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