States Eyeing Products, Fed Proposal

State regulators are working on underwriting guidance for interest-only and payment-option mortgages and they are soliciting comments on a federal proposal from state-licensed mortgage lenders and brokers.The Conference of State Bank Supervisors and American Association of Residential Mortgage Regulators support the proposed federal guidance on nontraditional mortgage products and CSBS and AARMR are developing guidance for state non-bank licensees, Chuck Cross of the Washington Department of Financial Institutions told a Federal Reserve Board hearing. (Mr. Cross is the department's director of consumer services). The Fed is holding public hearings on abusive lending practices, nontraditional mortgage products, and the need for better consumer disclosures. "We agree with the proposed guidance that lenders who choose to underwrite nontraditional products with less stringent income and asset verification requirements must be governed by policy guidance," Mr. Cross said at the June 16 hearing in San Francisco. Federal banking regulators are expected to issue final guidance later this summer. The Washington state regulator also said the current Truth-in-Lending Act disclosure system "does not work" and it only protects lenders who "accurately complete the forms."