Federal Reserve Board Governor Susan Bies says the outlook for mortgage credit quality is "favorable," despite a recent rise in subprime delinquencies."While we continue to expect mortgage delinquencies will remain manageable, lenders should closely monitor future developments," Ms. Bies told the American Bankers Association annual conference. The Fed governor did caution that lenders might have placed too much emphasis on future income growth and collateral values in making nontraditional mortgages. And too many of these interest-only and payment-option adjustable-rate mortgages went to subprime borrowers over the past two years, she said. Separately, the federal banking regulators have issued a consumer information pamphlet on interest-only and option ARMs.

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