The Mortgage Insurance Companies of America is urging federal banking regulators to "quickly" finalize underwriting guidance on interest-only and payment-option mortgages to stop lenders from making risky and unsuitable loans.Private mortgage insurers are "deeply concerned about the potential contagion effect of poorly-underwritten or unsuitable mortgages, " MICA executive vice president Suzanne Hutchinson says in a July 10 letter. The comment period on the proposed guidance ended March 29, and the regulators are not expected to issue final guidance for another few months. However, MICA says it is concerned that lenders are not taking the guidance seriously and have not reduced originations of IO and option adjustable-rate mortgages with "piggyback" or simultaneous second loans. MICA said the final guidance should make clear that simultaneous second loans are "risky in and of themselves," and that the risks are heightened when layered on IOs and option ARMs. In addition, the regulators should include "clear penalties" for lenders who disregard the guidance, MICA says.

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