U.S. Warns About Nontraditional Mortgages

By Mark Felsenthal and Kristin Roberts, Reuters

U.S. bank regulators issued proposed guidance on Tuesday telling mortgage lenders they should take caution with innovative new mortgage products that may strain the finances of borrowers and banks as interest rates rise.

“While innovations in mortgage lending can benefit some consumers, the agencies are concerned that these practices can present unique risks that institutions must appropriately manage,” bank regulators said in a statement accompanying the proposal.

The guidance targets interest-only and payment option adjustable rate mortgages and the practice of pairing exotic loans with second mortgages and allowing reduced documentation for borrowing.

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