Industry News

Bank regulators propose guidelines for subprime ARM lending

Tighter underwriting, disclosure standards considered for hybrid ARMs

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Responding to a rise in delinquencies on subprime mortgage loans, Federal bank regulators are moving to tighten underwriting and disclosure standards for some adjustable-rate mortgages. Like guidance issued in September for "exotic" interest-only and payment-option loans, the proposed guidelines for ARMs would direct federally chartered lenders to evaluate a borrower's ability to repay a loan at the fully indexed rate, rather than an initial "teaser" rate. Bank regulators also want lenders to provide "clear and balanced information about the relative benefits and risk of the products." The proposal follows a request by members of the Senate committee on Banking, Housing and Urban Affairs to extend the guidance for exotic loans to hybrid ARMs that carry initial teaser rates. Lending industry leaders who opposed the guidance for exotic loans have also objected to extending them to ARMs, saying they will restrict consumer choice.  The regulatory agencies proposing the new guidance...