Comptroller of the Currency Praises Interagency Work on Non-Traditional Mortgage Guidance

WASHINGTON - Comptroller of the Currency John C. Dugan today released the following statement after the release of final interagency guidance on non-traditional mortgages.

Over the past year, the Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of Thrift Supervision have worked together to craft guidance on non-traditional mortgages aimed at ensuring these products are offered in a safe and sound manner and in a way that clearly discloses their risks and benefits to consumers.

The final guidance considered each of the comments received from consumers, lenders, community groups, and other interested parties.  Its release today will advance consumer protection and enhance the safety and soundness of the nation’s financial institutions.

The marketing and use of nontraditional mortgage products -- particularly, interest-only and payment-option adjustable-rate mortgages -- have expanded rapidly to a wider spectrum of borrowers who may not otherwise qualify for more traditional mortgages of similar size.  These nontraditional loans carry substantial risks, most notably associated with negative amortization and potential payment shock that are not always adequately disclosed or understood by consumers.  Moreover, lenders are increasingly combining these loans with other practices, such as simultaneous second-lien mortgages and reduced documentation that compound the risk to consumers and lenders.

Through the combined efforts of the OCC and other federal financial regulators, we intend this guidance to lead to several improvements.  First, consumers should have the information they need to make informed decisions about these loans.  Second, lenders who originate these types of loans should follow sound underwriting practices that credibly consider the borrower’s repayment capacity and allow lenders to mitigate associated risks.

Through innovation and competition, the American financial system has helped record numbers of Americans achieve the dream of owning their own homes.  We expect the guidance released today will help to ensure this process continues on a sound footing for borrowers and lenders alike.