New mortgage guidelines planned

New mortgage guidelines planned: "NEW YORK -- May 23, 2005 -- Concerns about risk to the mortgage market and buyers has prompted federal regulators to work on new guidelines for residential lending, which could be available in early 2006.

After recently issuing first-ever guidelines for credit-risk management of home-equity loans, federal regulators now are focusing on first mortgages to address the increasing number of consumers turning to adjustable-rate mortgages, interest-only products, low- or no-documentation loans, and option adjustable rate mortgages (ARMs).

There is growing concern that borrowers are using these loans to qualify for more expensive houses and that the mortgages are ending up in the hands of people who cannot really afford the monthly payments. A study by the Mortgage Bankers Association found that ARMs, not including interest-only ARMs, accounted for 46 percent of the dollar value of mortgages lent during the second half of 2004; while interest-only loans accounted for an additional 17 percent of originations.

Source: The Wall Street Journal (05/19/05); Simon, Ruth; Hagerty, James R.

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