REGULATORS GIVE ADVICE ON EXOTIC LOANS.Byline: GREGORY J. WILCOX It took a while, but regulators from five federal agencies have finally issued guidance to address the risks posed by nontraditional mortgage products. These are the ones with hooks that let the holders postpone paying down the principal and sometimes even interest. In the marketplace, they are also touted as exotic or alternative loans and have such attractions as interest-only features and payment-option adjustables. Bottom line, most offer lower payments now and the opportunity for higher payments later. These products are not new but grew in popularity as housing prices exploded over the past five years. Educating consumers is the goal of the new guidelines guidelines, n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. . ``The guidance urges institutions to provide consumers with clear, balanced and timely information concerning the risk of these products,'' Federal Reserve Board Governor Susan Bies Susan Schmidt Bies (born May 5, 1947 in Buffalo, New York) was a member of the Board of Governors of the Federal Reserve System. Education and family Bies received a B.S. in education from the University at Buffalo, The State University of New York in 1967 and an M.A. said at the end of last month. ``It is important that consumers have the information they need at critical decision times, such as when selecting a loan product or when choosing a monthly mortgage-payment option.'' One concern is that these products sound appealing. As prices increased, the potential pool of borrowers grew to include those who could not qualify for a traditional, 30-year fixed-rate home loan. Here's what regulators are requiring of lenders: Ensure that loan terms and underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. standards are consistent with prudent lending practices, including consideration of a borrower's repayment capacity. Recognize that many nontraditional mortgage loans, particularly when they have risk-layering features, are untested in a stressed environment Stressed environment: In radiocommunications, an environment that is under the influence of extrinsic factors that degrade communications integrity, such as when (a) the benign communications medium is disturbed by natural or man-made events (such as an intentional nuclear burst), . These products require strong risk management standards, such as proper capital levels. Ensure that consumers have sufficient information to clearly understand loan terms and associated risks prior to making a decision. Regulators began working on the guidelines at the end of last December. The impact on the industry is unclear at this point. Institutions that fail to follow the guidelines will be asked to take ``remedial action A remedial action is a change made to a nonconforming product or service to address the deficiency. Rework and repair are generally the remedial actions taken on products, while services usually require additional services to be performed to ensure satisfaction. ,'' according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the Fed. That action will be determined on a case-by-case basis. John Karevoll, a market analyst for La Jolla-based DataQuick Information Systems, doubts that the increased scrutiny will have much impact on home sales, which are already in the tank here. Lenders were able to make riskier loans during the boom because they were better able to quantify the risk they were taking and fold it into the cost the mortgage holder was willing to pay. During the boom, there were not that many people who bought a home without putting some money down, and 20percent was still the norm, he said. Nor were lenders running amok
Running amok, sometimes referred to as simply amok (also spelled amuck or amuk , either. ``There may have been some rogue Rogue, river, c.200 mi (320 km) long, rising in SW Oreg., in the Cascade Range N of Crater Lake. It flows southwest and west through a fertile valley (noted for its orchard fruits) and then across the Coast Range to the Pacific Ocean at Gold Beach. lending institutions Noun 1. lending institution - a financial institution that makes loans financial institution, financial organisation, financial organization - an institution (public or private) that collects funds (from the public or other institutions) and invests them in out there, but the vast majority are very cautious,'' Karevoll said. |
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