Mortgage Lenders
Dismiss Concerns
Over Risky Loans
By MICHAEL SCHROEDER
March 30, 2006; Page D2
WASHINGTON -- Bank trade groups and financial institutions blasted proposals by bank regulators to rein in unconventional mortgages that allow borrowers to afford more expensive housing, dismissing concerns about risk as overblown.
Complaints poured in from groups representing federally regulated banks and thrifts, including the American Bankers Association, America's Community Bankers and the Consumer Mortgage Coalition, suggesting that the new requirements are overly restrictive and if adopted would cause many lenders to stop offering the nontraditional home loans.
One of the most aggressive mortgage lenders, Countrywide Financial Corp., said in its comment letter: "We do not believe that the risks associated with these particular loan products justify the specific and prescriptive guidance."
Late last year, federal regulators proposed more disclosure and tighter requirements for borrowers to qualify for so-called "interest only" and "payment option" adjustable-rate mortgages. The loans, which have been offered in various forms for decades, allow borrowers to exchange lower payments during an initial period for higher payments later in the payment schedule -- as opposed to the level payments of a 30-year fixed-rate mortgage.
With borrowers risking a possible doubling of monthly mortgage payments as interest rates rise, regulators raised concerns about defaults of these complex loans and whether borrowers truly understand them. The guidance recommended against allowing reduced documentation in evaluating an applicant's creditworthiness.
The loans grew in popularity over the past few years as housing prices escalated in several regions of the country, but demand has cooled recently as general interest rates have risen. Many banks, in part because of regulators' crackdown, already have stopped aggressively marketing nontraditional mortgages.
Final recommendations won't go into effect until after an internal review of comments -- probably in a few months. The comment period ended yesterday. Regulators could amend the guidance to address concerns raised by the banks, but it is unclear what changes that might involve.
The proposals were issued by the Treasury Department's Comptroller of the Currency and Office of Thrift Supervision, Federal Reserve, Federal Deposit Insurance Corp. and National Credit Union Administration.
America's Community Bankers said it supports appropriate disclosure to potential borrowers about alternative mortgage terms, but the group objected to requiring lenders to determine the "suitability" of mortgage products for the individual consumer. "We do not believe it is appropriate or possible for the lender to dictate the best mortgage products for individual consumers," the ACB letter said
The Consumer Mortgage Coalition, a trade group representing national residential mortgage companies, said in its letter that requirements should apply to all lenders including state-chartered mortgage companies, not only to federally regulated institutions.
Meanwhile, a few consumer advocacy groups, including the Greenlining Institute in Berkeley, Calif., and small banks wrote letters applauding strict guidance.
"It is very dangerous to use mortgage products that allow borrowers to buy homes more expensive than they can afford. Add this to a slowdown in the economy and the job market and we could have a serious recession," said David Stone, president of the Portales National Bank in New Mexico. |
