Coalition: Don't Treat Hybrid ARMs as Exotics

Industry groups are warning a group of senators that bringing hybrid adjustable-rate mortgages under the nontraditional mortgage guidance could adversely affect existing homeowners with ARMs, increase defaults, and even put downward pressure on home prices.The Consumer Mortgage Coalition has sent the first letter to the six senators who are urging bank regulators to include hybrid ARMs, such as 2/28 ARMs, under the nontraditional mortgage underwriting guidance. Other trade groups are expected to send letters soon. The CMC warns that such an expansion could harm existing ARM borrowers who are trying to refinance. "Some borrowers would be unable to refinance existing loans because they no longer qualify for a loan -- not because the lending industry has changed its mind about their qualifications -- but because the government had made an arbitrary and unjustified decision to require all lenders to tighten their standards," CMC executive directive Anne Canfield says. The CMC contends that lenders have extensive experience in underwriting ARMs and that tighter underwriting standards are "unjustified." The CMC also warns that tightening underwriting on all ARMs could reduce the pool of potential homebuyers and contribute to downward pressures on home prices.