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Tougher loan guidelines wise for borrowers

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The federal government has stepped into a battle between banks and borrowers and for once, the government is on the right track: New stricter loan guidelines should be applied not just to interest-only and payment-option adjustable-rate mortgages, but also to an entire category of esoteric and extremely complicated loan products. Six members of the U.S. Senate Banking, Housing and Urban Affairs Committee have asked banking regulators to subject hybrid ARMs to the same underwriting and disclosure guidelines that recently were mandated for other so-called "exotic" mortgages. Hybrid ARMs include such creatures as the "2-28" loan, which has a fixed introductory rate for two years and then fluctuates with market interest rates. The new federal guidelines require federally chartered banks to disclose the risk of significantly higher payments and assess the borrower's ability to make payments at the fully indexed rate on all payment-option ARMs and interest-only home loans. The guidelines...