Highlights:

• "Enhancing Transparency in the Structured Finance Market" identifies important transparency concerns in this market and highlights reforms the author believes would improve the transparency of certain securitization products. The article also highlights existing supervisory guidance regarding banks' investments in rated securities.
• "Hybrid ARMs: Addressing the Risks, Managing the Fallout" discusses how lax underwriting and potentially deceptive marketing claims have heightened risks associated with growth in hybrid ARM products. It also discusses supervisory guidance on key principles to protect consumers and manage the risks of these nontraditional loan products.
• "A Primer on the Use of Interest Reserves" identifies risks associated with this underwriting practice, reviews regulatory guidance, and highlights the importance of evaluating the appropriateness of interest reserves when an "Acquisition, Development and Construction" project falters or becomes troubled.
• "External Auditors' Reports: Communication of Internal Control Deficiencies" provides examples of internal control deficiencies and explains how these deficiencies should be evaluated and communicated as part of the external auditor reports. The article also highlights examination considerations and looks at how professional auditing standards may change.

Distribution:
FDIC-Supervised Institutions

Suggested Routing:
Chief Executive Officer
Compliance Officer

Related Topics:
Securitization
Transparency
Hybrid adjustable-rate mortgages
Interest reserves
Internal control

Attachment:
None

Contact:
Kim E. Lowry, Managing Editor
(klowry@fdic.gov or 202-898-6635)

Printable Format:
FIL-45-2008 (PDF Help)

Note:
FDIC financial institution letters (FILs) may be accessed from the FDIC's Web site at www.fdic.gov/news/news/financial/2008/index.html.

To receive FILs electronically, please visit http://www.fdic.gov/about/subscriptions/fil.html.

Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275-3342 or 703-562- 2200).