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With the increase of non traditional mortgages in the marketplace, a high level banking regulator is warning of potential risks in the non traditional mortgage market. If these trends continue,  there is the potential for a guidance to be issued by the Office of Thrift Supervision that could limit the quantity of interest only and adjustable rate loans being written by mortgage lenders.

Speaking to the New York Bankers Association, John M. Reich, director of the Office of Thrift Supervision, warned that some lenders are making it too easy for unsophisticated borrowers to take on risky non-traditional mortgages that they may not fully understand. Reich said regulators are “closely monitoring” the growth of loan types in which the payments can suddenly double, creating a payment shock that could force borrowers into foreclosure if housing values were to fall and could also cause financial losses for the lenders who make the loans. Via The Washington Post.

Personally, as the increase in Adjustable Rate and Interest Only loans are introduced into the marketplace, we are going to see increased regulation in these markets. I am not a big fan of government regulation as regular readers can understand, but the ability to borrow essentially over ones head is going to hit a point where regulation is needed. A mortgage broker with a family to feed will find a way to write the note. Even if it puts the borrower into grave danger later on.

Related posts:

1. Qualifying for Non Traditional Mortgages Gets Harder
2. Federal Regulators Stepping In To Curtail (Evil) Mortgage Practices
3. Wachovia Offers No Prepayment Penalty on Pick A Pay Loans
4. Fannie Mae, Freddie Mac developing HomeStay Loan Program For Subprime Borrowers in Difficulty
5. 2 Trillion in Mortgage Debt to Be Reset in 2006 and 2007