Feds Slam Lenders on Marketing of 'Exotics'

Federal regulators on Wednesday criticized the residential finance industry for aggressively marketing "exotic" mortgages without making full disclosures on the payment shock associated with some of the loans.At a jam-packed hearing before the Senate Banking subcommittee on housing, Sandra Thompson of the Federal Deposit Insurance Corp. told elected officials that in the monthly mortgage statements they send out, some lenders encourage borrowers "to make the minimum payment," adding that payment-option adjustable-rate mortgage customers "are not getting enough information" early in the application process. Also on Wednesday, the Government Accountability Office issued a report on "alternative mortgage products" (exotics), saying that some recent borrowers now lack sufficient equity in their homes to refinance out of the loans. The report notes that in their advertisements, "some lenders and brokers emphasize the benefits of AMPs without explaining the risks associated." According to exclusive survey figures compiled by National Mortgage News and Alternative Products Quarterly Data Report, mortgage bankers funded $264 billion in option ARMs and interest-only loans in the second quarter, or 31% of all mortgages funded.