States should follow the lead of federal banking regulators and adopt guidelines for nontraditional mortgages that include better disclosure of loan terms to consumers and more conservative underwriting standards. That's the position of two professional organizations that represent state bank and residential mortgage regulators across the U.S. Guidance on nontraditional mortgages issued Tuesday by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) largely mirrors new federal guidelines released Sept. 29. The federal guidelines instruct banks to clearly disclose the potential for increasing loan payments on interest-only and payment option, negative amortization loans. Banks are directed to analyze a borrower's ability to repay those loans at the fully indexed rate, taking into account any additional balance that could accrue through negative amortization. Those guidelines only apply to federally chartered banks, som...
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