Feds Warned About Applying Guidance to 2/28s

Industry groups are warning federal banking regulators that any sudden action to expand the nontraditional mortgage guidance to include "2/28" adjustable-rate mortgages could create a "major disruption" in the primary and secondary mortgage markets."For these reasons and others, we believe that a full economic analysis and a notice and comment process is essential before consideration of an expansion of the guidance to hybrid ARMs," says a Dec. 20 letter signed by the nine trade groups. Federal regulators appear to be divided on the issue, but they are under pressure from Congress and consumer groups to clarify that the nontraditional mortgage underwriting guidance applies to hybrids like 2/28 and 3/27 ARMs (which have initial fixed-rate periods of two and three years, respectively). But the trade groups stress that they would have "strong concerns" about such an expansion of the guidance without a careful and deliberative process.