FDIC: IO/Option Guidance Months Away

Federal Deposit Insurance Corp. Chairman Sheila Bair says federal banking regulators are still a few months away from finalizing guidance on interest-only and payment-option mortgages.In an interview with American Banker, a SourceMedia publication, the new FDIC chairman said the regulators are closer to finalizing the guidance on commercial real estate lending than the guidance on "alternative" adjustable-rate mortgages. "There are ongoing discussions and I'm hopeful that both will be out in the next few months," Ms. Bair said. Under the proposed alternative mortgage guidance, lenders would be required to assess a borrower's ability to repay at the fully indexed rate, including any balances added by negative amortization, before approving an IO or option ARM. Industry groups have called the underwriting restrictions "unwarranted" and "excessive." Ms. Bair is concerned that 70% of option ARM borrowers are choosing to make the minimum payment, an FDIC spokesman said. Industry groups have also raised objections to the CRE guidance, which is aimed at making sure banks and thrifts have the capital and risk management practices in place to deal with high concentrations of CRE loans.