Agencies
Provide Consumer Information on Nontraditional Mortgage Loans
The federal
bank, thrift, and credit union regulatory agencies today announced the
publication of a new resource that can help consumers make more informed choices when considering
nontraditional mortgage loans.
Interest-Only
Mortgage Payments and Payment-Option ARMs Are They for You? features a
glossary of lending terms, a mortgage shopping worksheet, and a list of additional
information sources. This information can help consumers, whether buying a
house or refinancing a mortgage, decide if an interest-only mortgage (an I-O
mortgage) or an adjustable-rate mortgage (ARM) with the option to make a minimum
payment (a payment-option ARM) is right for them.
The
publication stresses the importance of understanding
key mortgage loan terms, warns of the risks consumers may face, and urges
borrowers to be realistic about whether they can handle future payment increases. If consumers are not comfortable with these
risks, the publication suggests that they ask about other mortgage products.
Many
lenders offer home loans that allow consumers to (1) pay only the interest on
the loan during the first few years of the loan term; or (2) make only a
specified minimum payment that could be less than the monthly interest on the
loan. Lenders have a variety of names
for these loans, but with I-O mortgages and payment-option ARMs, consumers
could face payment shock. Monthly payments may double or
even triple following the interest-only period or when the payments adjust.
In
addition, consumers with payment-option ARMs could face negative amortization, a situation in which the monthly payments do not
cover all of the interest owed for that month. The unpaid interest is added to
the mortgage balance so that the amount owed on the mortgage exceeds the amount
originally borrowed.
The
interagency information is available on each agency's web site. A PDF (Portable Document Format) version is
provided so that consumer groups, financial institutions, agencies, and other
organizations can download and print copies for distribution to their clients
and customers. It includes a space on
the back panel for organizations to provide their own contact information. The web addresses are:
http://www.federalreserve.gov/pubs/mortgage_interestonly/default.htm
http://www.fdic.gov/consumers/consumer/interest-only/index.html
http://www.occ.treas.gov/ftp/release/2006-117a.pdf
http://www.ncua.gov/Publications/Index.htm
http://www.ots.treas.gov
Single
copies of the brochure are available free of charge from:
Publications, Mail Stop 127, Federal Reserve Board, 20th and
C Streets, N.W., Washington,
DC 20551; 202-452-3245
FDIC Public Information
Center, 3501 North Fairfax Drive, Room E-1002, Arlington VA 22226;
877-ASK-FDIC, 703-562-2200
# # #
Media Contacts:
Federal Reserve Susan
Stawick (202) 452-2955
FDIC Tibby
Ford (202) 898-6993
NCUA Cherie
Umbel (703) 518-6330
OCC Dean
DeBuck (202) 874-5770
OTS Chris
Smith (202) 906-6677