Comptroller Warns About IO Loans

The top national bank supervisor is raising concerns about "hot" mortgage products, such as interest-only loans, at a time when the housing market may be shifting.For borrowers who are pushing the envelope to qualify for a mortgage, interest-only loans are a "risky proposition," acting Comptroller of the Currency Julie Williams said. These loans are predicated on rising property values and a relatively benign interest rate environment, the acting comptroller told a banking conference in New Orleans. If property values fall or interest rates rise, "there's no telling how these loans would perform," she warned. The comptroller is advising lenders to "zero in" on loans that present the highest risk of default. "An important role that loan review can perform is to help identify how much of the portfolio is exposed to a higher probability of default, and how well the credit risk is being managed," Ms. Williams said.