Feds Moving Cautiously on 2/28 ARMs

Federal banking regulators are planning to propose new interagency guidance on subprime 2/28 adjustable-rate mortgages, but they say they want to move cautiously and avoid overreaching, despite congressional pressure.Federal Deposit Insurance Corp. officials hope to propose guidance for industry and public comment in the next two months. "FDIC Chairman Sheila Bair believes all products should be underwritten at the fully indexed rate with clear consumer disclosures," an FDIC spokesman said. But the FDIC may be ahead of the other regulators. "It is an area of concern," said Robert Garsson, a spokesman for the Office of the Comptroller of the Currency. ".... We need to look at it, and we will. But we are not going to act precipitously." Six senators recently urged the regulators to expand the nontraditional mortgage guidance to subprime 2/28s, which has stirred industry opposition. The regulators are considering a revision of the nontraditional mortgage guidance along with other options -- expanding the regulators' subprime guidance, or simply issuing a new advisory to address concerns about subprime 2/28s and 3/27s. (The 2/28 and 3/27 ARMs are 30-year mortgages that have a fixed rate for the first two years and the first three years, respectively.)