Key Democrats on the House Financial Services Committee are putting pressure on federal and state banking regulators to extend nontraditional mortgage guidance to adjustable-rate 2/28 and 3/27 mortgages to make sure those loans are underwritten at the fully-indexed rate."If financial institutions underwrite (or purchase loans underwritten) only for initial 'introductory' rates … they are placing consumers at unnecessarily greater risk of foreclosure and other financial harm," the five Democratic lawmakers say in a Feb. 16 letter to the regulators. "We consider this an important safety and soundness issue," said Committee chairman Barney Frank (Mass.), Rep. Brad Miller (N.C.), along with three subcommittee chairs -- Carolyn Maloney (N.Y.), Maxine Waters (Calif.) and Mel Watt (N.C.). At a Feb. 15 hearing, Federal Reserve Board chairman Ben Bernanke said the regulators are working on guidance and had not yet determined whether 2/28 ARMs should be underwritten to the fully indexed rate. In a separate letter, 23 committee members urged the regulators not to penalize institutions for extending forbearance when exotic mortgages and other ARMs reset, resulting in "enormous" payment shocks for borrowers.

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