Released: June 30, 2007

Regulators call for better mortgage underwriting

Source: Dina ElBoghdady, Washington Post

The Federal Reserve Board and other regulators urged lenders yesterday to more closely assess the ability of borrowers to repay certain types of home mortgages linked to an alarming rise in delinquencies and foreclosures.

The regulators targeted adjustable-rate mortgages made to subprime borrowers, who typically suffer from blemished credit. Those types of mortgages offer low introductory rates that later rise sharply.

Regulators yesterday recommended that lenders qualify borrowers at the higher rate that kicks in once the loan resets. To that end, they said lenders should, with a few exceptions, verify a borrower’s income. That practice had fallen by the wayside as housing prices climbed in the first half of this decade and lenders relaxed their standards.

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