Trade associations representing Realtors and lenders differ on new underwriting and disclosure guidelines for nontraditional mortgages.
The guidelines, issued last week by federal bank regulators (see story), require banks to use more restrictive standards in evaluating borrowers’ ability to repay interest-only and pay-option adjustable-rate mortgages, and to more fully disclose their costs.
The National Association of Realtors says it “strongly supports efforts to educate consumers” and that the guidelines will “ensure that lenders inform consumers about the risks related to nontraditional financing options.”
NAR “is very concerned that some borrowers are using nontraditional mortgages without fully understanding the risks involved,” said NAR President Thomas M. Stevens in a statement. NAR and the Center for Responsible Lending last year created an educational brochure, “Specialty Mortgages: What are the Risks and Advantages,” for Realtors to use in counseling clients.
The Mortgage Bankers Association says it has “strong concerns” about the guidelines, saying they restrict lenders from underwriting and managing risk differently from their competitors. That will in turn stifle innovation and undermine competition, limiting borrowers’ ability to choose “affordable interest-only products, said MBA Chairman Regina Lowrie in a statement.
“These products provide an important option for homeowners who have used them to tap their home’s increased equity for home improvements, to pay down debt and meet education and health care needs,” Lowrie said. “Despite the concerns expressed by some regarding the increased use of ‘nontraditional products,’ delinquency and foreclosure rates remain well within the range of historical norms.”
Stevens said nontraditional mortgages are “viable options for many qualified home buyers” and that “NAR supports lenders that make these loans responsibly. We encourage both regulators and lenders to monitor the impact of these new guidelines closely to determine if the guidelines unintentionally limit financing options for consumers who would otherwise benefit from nontraditional mortgages.”