Federal banking regulators are still working on guidance involving subprime 2/28 ARMs and they are not ready to issue anything yet, according to a letter the regulators are preparing to send to Senate Banking Committee Chairman Christopher J. Dodd, D-Conn."We are committed to issuing clarifying guidance for these types of products," the letter says. The letter indicates that the regulators are concerned about prepayment penalties and the practice of underwriting to the teaser rate. And they are considering an update of the existing subprime lending guidance and other approaches to address these practices. In December, Sen. Dodd and five other senators urged the regulators to extend the nontraditional mortgage guidance to subprime hybrid adjustable-rate mortgages. Sen. Dodd called the response a "little inadequate" during a committee hearing on monetary policy. "The notion 'We're thinking about it' was nice to know," Sen. Dodd said. "But I think many of us would like to know they're taking some additional steps." He asked Federal Reserve Board Chairman Ben Bernanke to respond in writing.

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