Friday, September 29, 2006

Inman - "Regulators tighten guidelines for 'exotic' mortgages" (9-29-06)

"New rules clamp down on underwriting, disclosure requirements"

"Federal banking regulators today published new guidelines for banks to follow when originating and underwriting "nontraditional" or "exotic" mortgages that carry potential payment shock for borrowers."

"Many in the loan industry cite these mortgages as major contributors to the nation's home-ownership boom as they have enabled many borrowers to purchase in high-priced markets where traditional mortgages were out of reach."

"The new guidelines retain disclosure and underwriting provisions that some banks had objected to as too restrictive, including a requirement that lenders qualify borrowers at the fully indexed rate for interest-only and payment-option loans."

"As Inman News reported last week, the new guidelines will require lenders to analyze a borrower's ability to repay not only the initial loan amount, but also any additional principal that may accrue in the case of a payment-option loan with negative amortization."

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