Sunday, December 11, 2005

WaPo on Mortgage Sales Practices

Today's Washington Post has an article on a potential regulatory response to option mortgages and related products.  Some highlights:

Federal financial regulators appear to be on the verge of reining in one of the most popular mortgages in hot housing markets nationwide -- loans that allow 1 percent to 2 percent payment rates leading to "negative amortization."

In a speech last week to the Consumer Federation of America, Comptroller of the Currency John C. Dugan hinted strongly that banks and their mortgage subsidiaries can expect significantly toughened rules for 2006 governing "payment-option" home loans. Payment-option mortgages have accounted for about a third of all new home loans originated by some major lenders this year. They are especially popular in high-price, high-appreciation markets on the west and east coasts because their low payments permit buyers to purchase costly properties they would otherwise be unable to afford. . . .

"Is this an appropriate product to mass-market to customers who may be looking at the less than fully amortizing minimum payment as the only way to afford a large mortgage?" Dugan said.

His clear implication was no -- a conclusion with huge potential significance for the real estate market. Dugan's office heads the Treasury Department's main regulatory oversight unit for national banks and their mortgage subsidiaries.

Related posts are here and here.

Ben Barros

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