Bernanke Touts Disclosures for IO, Option ARMs

Federal Reserve Board Chairman Ben Bernanke says good disclosures on interest-only and payment-option ARMs are "very important" and should adequately address the risks associated with these nontraditional adjustable-rate mortgages."These mortgages are appropriate for many borrowers, but they are not appropriate for all borrowers," the Fed chairman told students attending the American Bankers Association's Stonier School of Banking. Banking regulators issued proposed guidance in December that spells out the need for sound underwriting, stress testing, and adequate consumer disclosures on IO and option ARMs. "It is important that advertising materials and brochures and other information given to consumers … adequately disclose the danger of these rather complex instruments," Mr. Bernanke said in response to a question. He noted that the regulators are reviewing the comment letters and said he expects final guidance to be issued in the "not-too-distant future."