Feds propose subprime loan warnings

Several federal agencies are looking for comments on a proposed subprime mortgage lending statement that addresses risks and issues relating, especially, to adjustable-rate mortgages.
The statement is meant to address concerns that subprime borrowers may not fully understand the risks of the lending products, and that the products may pose an elevated credit risk to financial institutions.
In particular, the proposed guidance focuses on loans that involve repayment terms exceeding a borrower’s ability to repay the debt without refinancing or selling the property.
The statement specifies that an analysis of a borrower’s ability to repay should include an evaluation of the borrower’s ability to repay the debt at its final maturity. It also stresses that consumers should get clear, balanced information about the benefits and risks of the products.
If adopted, the statement would complement the 2006 Interagency Guidance on Nontraditional Mortgage Product Risks, which did not specifically address the risks of ARMs.
The agencies seeking feedback are the U.S. Treasury Department’s Office of the Comptroller of the Currency and Office of Thrift Supervision, the Federal Reserve System, the Federal Deposit Insurance Corporation and the National Credit Union Administration.