Two Washington consultants are predicting that federal banking regulators will issue final guidance on interest-only and payment-option adjustable-rate mortgages "pretty much" as originally proposed back in December, despite industry opposition to the proposal.Karen Shaw Petrou and Basil Petrou, managing partners of Federal Financial Analytics, told a Bank of America mortgage conference that the final nontraditional mortgage guidance will be out by mid-October. "Importantly, it will cover not only originations, but also sales to the secondary market -- a boon, we think, for Fannie Mae and Freddie Mac's declining market share, since lenders will return to more conventional, conforming loans," Ms. Petrou said. The new guidance also frowns on piggyback mortgages, "especially when the second is layered into a high-risk mortgage product," she said. In addition, banks and thrifts should expect to see strong enforcement of the new underwriting and disclosure guidance, according to the FFA partners.

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