Reich: B&C Guidance Will Be Little Changed

Federal banking regulators could issue subprime mortgage guidance in the next few weeks, and it will look a lot like the original proposal, according to John Reich, director of the Office of Thrift Supervision.In speaking to reporters, Mr. Reich indicated that the final guidance will require lenders to underwrite adjustable-rate 2/28 mortgages at the fully indexed rate and that it should satisfy the demands of Senate Banking Committee Democrats. However, he wants to be sure that lenders have the flexibility to modify or refinance existing subprime ARMs that are due to reset over the next 12 months so the monthly payments remain affordable and the borrowers are not forced into foreclosure. "That is an issue that the regulators need to address," Mr. Reich said, and he indicated that the issue is still being worked on. Separately, Comptroller of the Currency John Dugan said he wants the guidance to curb the practice of making "stated-income" subprime loans and emphasize the importance of verifying a borrower's income.