Regulators publish loan fact sheets

Regulators publish loan fact sheets

	Published : Fri, 01 Jun 2007 00:03 By : Agencies Print this Story

WASHINGTON (AP) - Federal banking regulators Thursday issued three fact sheets aimed at educating consumers about the risks of mortgages that are not typical 30-year, fixed-rate loans.

Banks and other lenders are not required to give the fact sheets to customers although a sharp downturn in the market for mortgages given to borrowers with poor credit has banking regulators offering copies of the new sheets to any institutions that request them.

The fact sheets explain, among other things, 'interest-only' mortgages that allow borrowers to avoid paying the principal balance on a loan for several years.

'Payment-option' loans that give homeowners flexibility to decide how much to pay each month are also explained. One option on such a loan is a minimum payment that covers only a portion of the monthly interest and allows the principal balance to increase.

These types of mortgages appeal to borrowers with limited cash flow and less-than-stellar credit. But they have been blamed for driving this decade's housing boom to unprecedented heights and a subsequent slump.

The problem with the loans is that at some point borrowers must find a way to pay the interest and the principal. Critics say this wasn't made clear to many borrowers, some of whom own homes that are at risk of being worth less than what is owed on the mortgage.

Banking regulators also published a chart Thursday that compares monthly payments over several years for three different types of mortgages and a table that could be included in a typical monthly bill for a 'payment-option' mortgage, designed to describe a borrower's options for monthly payments.

The share of nontraditional mortgages rose from less than 10 percent of the U.S. total to about 30 percent between 2003 and 2005, the Government Accountability Office told Congress last year. These mortgages were concentrated on the East and West Coasts, especially in California.

Most of the biggest lenders have tightened credit standards since February, when problems in parts of the mortgage market began to worsen. Lenders catering to home buyers with weak, or subprime, credit, have seen a spike in defaults on payments and more than 30 subprime lenders have gone bankrupt so far this year.

As of the first quarter, Citigroup Inc. was the top subprime lender nationwide, followed by Countrywide Financial Corp., HSBC Holdings PLC, H&R Block Inc. subsidiary Option One Mortgage and First Franklin Financial Corp., according to statistics compiled by trade publication Inside B&C Lending.