OTS Chief Cautions About Option ARMs

The director of the Office of Thrift Supervision, John Reich, says adjustable-rate mortgage products with negative amortization features are "not appropriate for unsophisticated borrowers or those with weaker credit capacities."Mr. Reich told the Exchequer Club that there is a market for payment-option ARMs, and some thrifts have successfully offered this product for 20 years. However, the regulators are worried about the sudden growth in option ARM originations by institutions with limited experience in managing the risks of these loans. "While it is not a product that should be offered to all borrowers, I would not want to deprive qualified candidates from a homeownership opportunity by declaring it off limits," he said. Federal regulators issued guidance on interest-only and option ARMs in December. Mr. Reich said the comment period will likely be extended 30 days to March 29.