WASHINGTON — The federal financial
regulatory agencies today issued a final Statement on Subprime
Mortgage Lending
to address issues relating to certain adjustable-rate mortgage (ARM) products that can cause payment shock.
The statement describes the prudent safety
and soundness and consumer protection standards that institutions
should follow to ensure borrowers obtain loans they can afford to
repay. These standards include a fully indexed, fully amortized
qualification for borrowers and cautions on risk-layering features,
including an expectation that stated income and reduced documentation should be accepted only if there are documented mitigating factors that clearly minimize the need for verification of a borrower’s repayment capacity. Consumer protection standards include clear and balanced product disclosures to customers and limits on prepayment penalties that allow for a reasonable period of time, typically at least 60 days, for customers to refinance prior to the expiration of the initial fixed interest rate period without penalty.
The statement reinforces the April 17, 2007
interagency Statement on Working with Borrowers
, in which the agencies encouraged institutions to work constructively with residential borrowers who are financially unable or reasonably expected to be unable to meet their contractual payment obligations on their home loans. Workout arrangements that are consistent with safe and sound lending practices are generally in the long-term best interest of both the financial institution and the borrower.
The agencies published the proposed
Statement on Subprime Mortgage Lending for comment on March
8, 2007. Comments were received from financial institutions, trade
associations, consumer and community organizations, members of
Congress, state and local officials, and members of the public. The
agencies made a number of
changes to the proposal to respond to commenters’ concerns and to provide additional clarity.
The Statement on Subprime Mortgage Lending is
attached.
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Attachment
Media Contacts:
| Federal Reserve |
Deborah Lagomarsino |
(202) 452-2955 |
| FDIC |
David Barr |
(202) 898-6992 |
| NCUA |
Cherie Umbel |
(703) 518-6337 |
| OCC |
Kevin M. Mukri |
(202) 874-5770 |
| OTS |
Kevin Petrasic |
(202) 906-6677 |