The principles outlined in the federal government's nontraditional mortgage guidance should apply to subprime hybrid ARMs, says Federal Reserve Board Chairman Ben Bernanke, and the new guidance will be issued "fairly soon."The Fed chairman told the House Financial Services Committee that lenders should use "good underwriting" in making subprime adjustable-rate mortgages. However, regulators are still working on the guidance and have not determined whether 2/28 ARMs should be underwritten to the fully indexed rate, he said. The guidance issued in September requires lenders to qualify borrowers of interest-only and payment-option ARMs at the fully indexed rate. They can no longer underwrite based on the teaser rate.
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