According to John M. Reich, director of the Office of Thrift Supervision, speaking at the New York Bankers Association meeting recently, the mortgage industry is taking too many risks with their lending portfolios could be an unacceptable risk for the companies and the economy.
Non traditional loans are very prevalent in parts of the country as prices have hit levels that are unaffordable with conventional mortgages. Interest Only Mortgages and Adjustable Rate Mortgages are the norms in these areas. These loans work well in rising markets but can be extremely dangerous in periods of high interest rates or falling home prices.
Reich says the Feds don’t want to end the use of mortgage products that are clearly in demand, especially when some lenders have a track record of managing the loans’ inherent risks.
Instead the Feds seek to corral use of the loans and prevent them from falling into the hands of less sophisticated borrowers and others with weaker credit profiles.
To that end Reich said regulatory examiners are now “digging deeper” into loan portfolios to learn the level of risk lenders are facing. Examiners will scrutinize loan documentation, pricing, loan-to-value ratios, and overall underwriting standards.
“We continue to monitor overall operational costs, again, with close attention paid to costs attributable to prior build-ups in mortgage lending operations. In addition to our ongoing monitoring of interest rate risk, we are looking at credit risks, particularly with respect to nontraditional mortgage lending products,” Reich said. via the Realty Times
