Mortgage Lending Abuse Law Blog

Steering and Coercing

According to the Mortgage News Daily, predatory lenders use different abusive tactics when dealing with sub-prime loans. Borrowers are often subjected to aggressive sales practices to steer or coerce them into refinancing when it is not in their best interest to do so.

Negative Amortization

A traditional mortgage loan payment is ususlly applied partially to interest and partially to principal. Amortization is the paying off of the principal in regular installments over a period of time. On the other hand, negative amortization is when the borrower pays back less than the full amount of interest owed to the lender each month. Thus, the difference between what should have been paid and what was actually paid is added to the principal amount owed to the lender, resulting in the accumulation of more debt as opposed to equity.

]]> Negative amortization loans typically have adjustable rates. In other words, they are fixed for a specified period and adjust when that period has elapsed. The Graduated Payment Mortgage is a fixed-rate Negative Amortization loan, payments for which increase over time.

Negative amortization increases on loans features where the minimum installment does not cover the amount of interest due on a loan, the interest rate adjusts more frequently than the monthly payment, or where the changes in the monthly payment are capped. As a consequence, the principal balance rises.

Most lenders only allow Negative Amortization to happen for a specified period, which is typically five years. Lenders can also pre-determine an amount, which if reached through negative amortization would trigger the loan to enter a fully amortizing or regular payment schedule. The specified period or amount protects the lender, not the borrower, in that it allows the lender to change the loan to fully amortizing.

Predatory lenders use Negative Amortization features to lure borrowers into buying more than what they can afford, because negative amortization increases affordability by adding payment savings and payment flexibility to a mortgage loan.

According to the Mortgage Professor, if interest rates rise persistently, home equity will decline rather than rise unless the negative amortization is offset by house appreciation. In addition, negative amortization must be repaid, which means the payments are going to rise in the future. The larger the negative amortization, the greater will be the increase in the future payments that will be required to amortize the loan in full.

Predatory Lending Warnings for Foreclosure Victims

According to the Asbury Park Press, shady real estate players have given bad deals to unsophisticated Ocean County residents trapped in foreclosure proceedings. Steve Mecka, an investigator with the Ocean County Prosecutor's office, warned that such real estate players will be prosecuted if they are out of line. The Prosecutor's Office has been working with the Sheriff's Department and other county offices to alert foreclosure victims about predatory lending practices.

]]> Mecka and Undersheriff Wayne R. Rupert describe the scams as a victim facing foreclosure being contacted by self-proclaimed real estate investors who tell him that they will bid on his house in a foreclosure sale, and offer the victim $3,500 to sign an agreement to transfer the property to them. The victim then contacts the Sheriff's department, who administers foreclosure sales, and is told that there was extra money available to him left from the sale, after the mortgage lender's debt was satisfied. The surplus was $43,000, which the victim was able to get back through the Superior Court Trust Fund Division, with the help of a lawyer who got him out of the $3,500 contract he had signed during the three-day reconsideration period.

Since January 2006, county officials have been using a two-step warning system to help homeowners going through foreclosure to know their rights. Such warning notices are mailed at the time the property is posted for sale, and immediately after the sale, which specifies that homeowners can get a surplus as described above.

Although some third party bids to pay off foreclosures are legitimate, such as a new lender or family member stepping in to help a homeowner reorganize finances, there are other predators waiting to take advantage of ill or uneducated property owners.

Currently, only Ocean County is utilizing the warning notice effort. However, according to county officials, state Assemblyman, James W. Holzapfel, is sponsoring legislation that would require all 21 New Jersey counties to adopt the system.

Minorities Susceptible to High-Cost Predatory Loans

According to the Contra Costa Times, minorities with high-cost predatory loans outnumber whites at a rate of five to one, according to a study comparing 130 American cities. The data for the study came from a report called "The Impending Rate Shock 2006," which refers to the wave of sub-prime mortgage loans issued in the past year that have a two-year fixed rate before changing to an adjustable rate, which means the interest can increase by 5 or 6 percentage points. The study's authors believe the "shock" will affect minority borrowers most severely.

]]> According to Valerie Coffin, director of fair housing for the Association of Community Organization for Reform Now ("ACORN"), minority home loan applicants are steered into higher-cost or adjustable-rate loans even if they are able to apply for a lower fixed rate.

According the study, San Francisco had the lowest level of high-cost mortgage loans in the country at 9.6 percent, but African-Americans were 5 times as likely to have a sub-prime loan as whites. Latinos were outstandingly 10 times more likely to have a high-cost loan. In the East Bay, African-Americans more 4.7 times more likely and Latinos 4.8 times more likely than whites to have a sub-prime loan.

Furthermore, upper-income African-Americans in San Francisco were 5 times more likely and upper-income Latinos 10 times more likely than whites with the same income to receive a high-cost loan. Upper-income is defined as more than $79,700 per year.

Wells Fargo was one of the 15 largest lenders included in the report, which covers 65.5 percent of all residential mortgages originated in 2005, and 55 percent of the sub-prime market. Chris Hammond, spokesman for Wells Fargo, said that Wells Fargo is committed to the communities they serve and spend countless hours in loan literacy efforts.

The Mortgage Bankers Association did not respond to calls for comment. In addition, Washington Mutual spokesman, Tim McGarry, declined to comment on the study.

Middle Class Borrowers Fall Prey to Predatory Lending

According to the San Diego Business Journal, a recent study completed for the San Diego City-County Reinvestment Task Force found that nearly three out of four predatory loans were made to borrowers with middle and upper incomes. The study also referred to the rising use of interest-only mortgages, which may be predatory if they include high fees and points, balloon payments, and late or pre-payment penalties.

]]> A joint city-county program funds the task force, which monitors banks on lending activities and compliance with federal laws regarding community reinvestment. The report used lending data supplied by mortgage lenders as required by the 2004 Home Mortgage Disclosure Act. The report, compiled by Bouton & Associates, a San Diego bank consulting firm, found that 14 percent of the loans approved in 2004, were considered predatory.

According to the report, while 27 percent of the predatory loans were made to low- and moderate-income borrowers, 73 percent of the borrowers came from either middle-income or upper- income census tracts. Middle income was defined as 80 percent to 120 percent of the national median family income of $62,400 by the federal government. Upper income was 120 percent or more of the median family income.

According to Steve Bouton, the report's author, the report does not define predatory lending, but refers to loans that have predatory characteristics such as excessive interest rates, high points and fees, balloon payments and disproportionate penalties for prepayment.

The report also referred to interest only loans as predatory, but some lenders have questioned the report's findings regarding this specific issue, citing good underwriting as the reason for such loans as other than predatory.

According to Bouton, the fact that most predatory loans were made to people from higher income levels was surprising, and stated that it is not just an issue for low to moderate-income borrowers anymore, but a problem for middle America in general.

Dangers for Option ARM Borrowers

According to Business Week, borrowers who jumped into option adjustable rate mortgage (ARM) loans are in danger of their payments skyrocketing. The ARM is possibly the riskiest and most complicated home loan product yet. The ARM has attractive low minimum payments, which has brought a new group of home-buyers into the market, thus extending the housing boom.

]]> Many of the option ARMs taken out in 2004 and 2005 are resetting at much higher payment schedules, often to the astonishment of people who thought the low installments were fixed for at least five years. Because home prices have leveled off, borrowers cannot count on rising equity to save them. Furthermore, high pre-payment penalty terms prevent such borrowers from refinancing.

According to Business Week, brokers are paid more to sell option ARMs than other mortgage products, and lenders are allowed to claim the full monthly payment as revenue even when borrowers choose to pay much less. Moreover, the option ARM's interest rates and fees might not have been set by their bank but rather by a hedge fund, which is a lightly regulated private investment fund sometimes characterized by unconventional strategies.

Also, because banks don't have to report how many option ARMs they underwrite, few choose to do so. Also, banks have protected themselves by selling their option ARMs as repackaged mortgage-backed securities to Wall Street investors, hedge funds and other big investors. Other option ARMs remain on lenders' books, generating large profits for some lenders, as banks can count as revenue the highest amount of an option ARM payment even when borrowers only make the minimum payment, claiming future revenue now. However, it is difficult to know if unpaid interests and payments will ever get paid.

Option ARMs were initially marketed as flexibility tools to wealthy home buyers who wanted the option of making low payments most months and then paying off a big chunk all at once. However, in the past few years, option ARMs have become affordability tools for the masses in order for the banks to keep the money flowing, without regard to whether such people could deal with or even understood the risks.

Currently, up to 80% of all option ARM borrowers make only the minimum payment each month, according to Fitch Ratings, with the rest of the money getting added to the principal balance, also known as negative amortization. Accordingly, when balances grow to a certain amount, the loans automatically reset at higher payments.

Soon, option ARM borrowers will be confronted with the choice of paying higher payments or losing their homes.

Regulators To Issue Stricter Guidelines for Lenders

At a Senate Banking Committee hearing on "exotic mortgages", U.S. banking regulators promised that stricter lender guidance would be released in a few weeks, according to Market Watch. The term "exotic" is used to refer to mortgage loans that allow interest-only payments or eat into the equity in a home. Such exotic mortgages have increased in the past three years from less than two percent in 2000 to more than thirty percent in 2006. Moreover, in 2005, about half of such mortgages originated in California.

]]> The Federal Deposit Insurance Corporation found that exotic mortgage loans were more prevalent in the housing markets with the biggest price increases.

At the hearing, the regulators testified that defaults and foreclosures on exotic mortgage loans remain very low. However, they also stressed that it is too early to tell what might happen if the economy slows, and interest rates and housing prices go up.

Mortgage Industry representatives at the hearing insist that they are responding to consumer demand. However, consumer advocates say that the consequences could be drastic as many borrowers do not fully comprehend what they are getting themselves into, as the loans allow them to buy a more expensive home by minimizing their initial payments. Because under some circumstances, the monthly payments could double or triple, many borrowers will not be able to keep up with their payments.

According to the Government Accountability Office, the disclosures made at closing of the loan are generally written in complex language, fine print or small and unreadable typeface, contributing to borrowers' lack of ability to understand the terms of their exotic loans. Accordingly, a large number of borrowers severely underestimate how much their payment could go up.

The soon to be released guidance will require greater disclosures to borrowers about the risk and benefits of exotic mortgage loans, and would recommend tighter credit standards for such loans, including forcing lenders to consider whether borrowers can afford full payment on the loan. Such standards are necessary because monthly payments could double or triple once the low initial payments expire.

The guidance will not cover a large part of the market that is not under federal bank supervision. However, state regulators say that they have moved to match federal efforts of making standards the same for all lenders.

Michael Calhoun, president of the Center for Responsible Lending, believes that the proposed guidance should be expanded to the sub-prime market, as he believes that the national economy is at great risk if sub-prime loans fail in great numbers, which he fears they will.

More Homeowners Fall Behind in Mortgage Payments

According to USA Today, the Mortgage Bankers Association said that more homeowners with less than perfect credit are falling behind on their mortgage payments. This phenomenon is especially true in Ohio, Alabama, Tennessee, Michigan and West Virginia, where job losses have affected the local economies.

]]> About 12.2 % of homeowners with sub-prime credit who pay high interest rates and have adjustable rate mortgages (ARMs) that reset to higher rates were late paying their loans in April through June, 2006, which was the highest level since 2003.

Furthermore, about 25% of all mortgages are ARMs, and more than half of those loans are to sub-prime borrowers. Accordingly, late payments are expected to rise through next year as ARMs reset to higher rates.

The Homeownership Preservation Foundation, which provides free credit counseling jumped by 25% in July 2006. More than half of the distressed callers had ARMs.

In Ohio, which has lost thousands of manufacturing jobs, the foreclosure process was already underway for 11% of homeowners with sub-prime ARMs, which is the nation's highest foreclosure rate.
In California, which had the nation's highest number of risky ARM loans, delinquency rates are still near historic lows.

Moreover, homeowners in Louisiana and Mississippi are still suffering from the financial aftermath of Hurricane Katrina. In these states, one of every four borrowers in those states with a sub-prime ARM was in default.

Rising Mortgage Rates and Predatory Lending

According to the Wall Street Journal, homeowners have embraced adjustable-rate mortgages in recent years, and other variations such as option ARMs, interest-only mortgages and "piggyback" loans, which, allow borrowers to make a minimum monthly payment, pay interest and no principal in the loan's early years, or finance 100% of the purchase price, respectively. The growing popularity of these products has helped fuel consumer spending, as well as home value gains and rising homeownership rates. However, the downside of this lending boom is that interest rates are taking a toll on family budgets as home prices stabilize or fall in some areas.

]]> According to a recent study by Credit Suisse, the portion of adjustable-rate mortgages that were at least 90 days past due has climbed 141% in the past year, compared to a 27% rise in such delinquencies for fixed-rate mortgages.

Although many borrowers with such problems have low incomes or flawed credit histories, housing counselors say that many middle and upper-middle income borrowers are also starting to get trouble as they buy homes they can barely afford. Such borrowers may have taken out loans that did not require them to document their income, thus resulting in their overstating their earnings, according to Michael van Zalingen, director of homeownership services at Neighborhood Housing Services of Chicago.

Steven Schwaber, a bankruptcy attorney from Pasadena, California, says that he has been getting more calls from small-business owners who refinanced and tapped into their equity in order to keep their businesses afloat, making their home payments go up by 25 to 30 percent.

Credit-counseling agencies say that they have seen a growing number of homeowners get pinched by rising mortgage payments, due to the structure of their mortgage, and not what is usually the source of a problem such as a major life change including job loss, medical problems, divorce or death.

Recently, the mortgage payment has become more variable than any other expense for millions of people, according to Elizabeth Warren, a Harvard Law School professor who has studied consumer bankruptcies.

Rising mortgage rates are mostly a problem for borrowers if they did not understand the risks of their mortgages, or closed a loan deal that was not what they expected, or did not have a cash cushion to cover higher mortgage payments. According to a recent study by Macquarie Mortgages, USA, more than 30% of mortgage brokers believe their clients do not understand the mortgage they selected.

Jordan Ash, director of the Acorn Financial Justice Center, an advocacy group that focuses on predatory lending issues, says that the reason why a borrower is placed into an ARM or interest-only loan is because that is the only way they could be qualified.

When borrowers miss payments due to a sudden interruption in income, a lender may structure a repayment plan to allow the borrower to catch up, such as adding unpaid debt to the loan balance. However, if the problem is a result of rising mortgage rates, a borrower will have to get a second job or cut spending to catch up on payments.

To help resolve this problem, some lenders are making an effort to alert borrowers to payment resetting in advance. Lenders also offer refinance options that will allow a switch from ARM to to fixed-rate interest-only mortgages. But according to Doug Duncan, chief economist of the Mortgage Bankers Association, there may not be a solution for some borrowers, since ARMs always have higher delinquency and foreclosures than fixed-rate mortgages.

Some borrowers have chosen to sell the homes they can no longer afford, which opens the door in California for example, for short sales, transactions in which the sale price of the home is not enough to cover the loan balance.

The lesson should be to not buy more home than one can afford, shop around, carefully review loan documents and get second opinions before signing.

Foreclosures On the Rise in Minnesota

More than 4,200 Twin Cities-area homeowners have lost their homes to foreclosure so far this year. Compared to other cities, this is a low figure. However, for the Twin Cities-area, this a very high figure, near double last year's figure. With the help of foreclosure.com, a national data service, the St. Paul Pioneer Press has attempted to show that the concentrations of foreclosures over the last year and a half are threatening communities such as North Minneapolis, St. Paul's East Side, Brooklyn Park, Cottage Grove and Apple Valley, according to foreclosure.com, a national data service.

]]> According to the Pioneer Press, experts worry that rising interest rates and declining home values will drive many Minnesota homes into foreclosure.

The hardest hit areas are lower-income, minority neighborhoods in core cities, especially those comprised of mostly African-Americans.
However, foreclosures are also happening in Dakota County and Scott County, including expensive homes in the Wilds, a planned community in Prior Lake built around a golf course.

Some of the reasons cited for such an exponential increase in foreclosures in the area are: home values that decline while interest rates rise, risky mortgages such as interest-only or negative amortization, aggressive marketing of high-cost, sub-prime mortgages to people with shaky credit, excessive refinancing, mortgage fraud, adjustable-rate mortgage resetting, and buyers who do not fully understand their loans. According to local experts, adjustable-rate mortgages, or ARMs may be the most common cause of foreclosures. At least 145,000 Minnesota homeowners have ARMs, according to LoanPerformance.

Two University of Minnesota studies show heavy concentrations of sub-prime loans in the Twin Cities' most heavily minority neighborhoods, which are also heavily hit with foreclosure. The first, by Crump, the urban housing professor, estimated that African-Americans in the Twin Cities are 34 percent more likely to receive a sub-prime mortgage than whites, and Latinos are 13 percent more likely. The second study, by Eric Myott at the university's Institute on Race & Poverty, used a different formula and more recent data, and concluded that African-Americans in the Twin Cities area were 164 percent more likely than whites to get a sub-prime loan, and people of color in general 78 percent more likely.

Keenan Raverty, president of the Mortgage Association of Minnesota, said that the higher concentrations of foreclosures in core city neighborhoods are likely there because many low-income borrowers took out loans with little or no down payment. Accordingly, when a housing market starts to decline, such borrowers can quickly owe more on the house than the house is worth and have more difficulty selling it to avoid foreclosure.

According to Eric Ewald, managing director of the Mortgage Association of Minnesota, the data used in the two University of Minnesota studies is skewed, because the Housing and Mortgage Disclosure Act information drawn from lenders does not include all the risk factors considered in home loans, such as credit scores, which could explain why people are getting more expensive sub-prime loans.

St. Paul city planner Tony Schertler speculates foreclosures show up in core city neighborhoods such as Jordan and Dayton's Bluff first because those homeowners have less financial cushion when a water heater breaks or other trouble hits.

However, according to Autumn Lubin, a foreclosure-prevention specialist, home losses have a way of spreading. For example, a neighborhood full of for-sale signs or boarded-up homes has a hard time attracting investors and newcomers, who might fear property values will fall. As one neighborhood stumbles, there can be a snowball effect that is very hard to stop.

Federal Regulators Issue New Guidance for Lenders

According to Forbes.com, federal regulators directed banks to properly explain the risks posed to borrowers from interest-only and other nontraditional mortgages on September 29, 2006. Such guidance is aimed at addressing the fear that consumers do not understand the risk associates with such mortgages, such as rising interest rates, which could significantly affect their monthly payments.

]]> The new guidance was issued jointly by the Office of the Comptroller of the Currency, the Federal Reserve, the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the National Credit Union Administration.

According to the regulators, banks need to make sure the loans they make are consistent with prudent lending practices, such as consideration of a borrower's repayment capacity. Accordingly, the new guidance will be used for audits of banks' operating procedures by the regulatory agencies.

Mark Zandi, chief economic at Moody's Economy.com, points out that mortgage delinquency and foreclosure rates are rising, which could begin to affect the banking system. Thus, according to Howard Glaser, an industry analyst with the Glaser Group in Washington, said the new guidelines reflect a deep concern by federal regulators about the impact of exotic mortgages on borrowers as well as banks.

However, it is the position of the Mortgage Bankers Association that delinquency and foreclosure rates are within the range of historical norms. According to Regina M. Lowrie, chairman of the mortgage group, the new guidelines propose a standard that will halt industry innovation and decrease consumer choice.

Sub-Prime Loans Hurt Minorities

In 2005, 53 percent of African-Americans who received new mortgages in Philadelphia and its adjacent Pennsylvania counties got high-cost loans, according to recent research by the Association of Community Organizations for Reform Now ("ACORN"), as reported by the Sun Herald. Furthermore, the figure was 35.5 percent for Latino borrowers, followed by 13 percent for whites.

]]> ACORN found that the disparity is not a result of economic differences, because upper-income African-Americans were almost five times as likely, and upper-income Latinos were three times as likely, as their upper-income white counterparts to receive high-cost loans. The results were basically the same in most of the 130 U.S. cities studied.

ACORN concludes that lenders are pushing such profitable high-cost loans to borrowers who could qualify for less expensive, conventional loans. Accordingly, previous studies have found that one third to one half of sub-prime borrowers could have gotten better deals.

A typical sub-prime loan has an adjustable rate figured by adding 5.5 percentage points to the six-month London Inter-Bank Offer Rate. Early in 2004, the LIBOR rate was about 1.2 percent. Currently, it is about 5.4 percent. That means a loan that charged 6.7 percent at the start of 2004 could jump to nearly 11 percent at its next adjustment - compared with the 6.5 percent fixed-rate you can get on a typical 30-year mortgage. For every $100,000 borrowed, the monthly payment would rise from $646 to $952. Thus, it is no wonder that lenders would be motivated to market and sell such high-cost loans.
Because 60 percent of sub-prime loans are set to have their interest rates change by the end of 2006, adjustable-rate mortgages (ARMs) pose a large threat to individual homeowner and neighborhood security.

Homeowners facing rate increases that make their payments too expensive can try to sell their properties, which may be difficult in today's market. The other option is to refinance with a standard 30-year, fixed-rate loan. It is a good idea for consumers in such situations to obtain debt counseling, check their credit reports for mistakes, and shop around among lenders for a good refinancing deal.

Unnecessary Products Sold By Predatory Lenders

Upon taking out a mortgage loan, predatory lenders take advantage of the borrower and aggressively sell the borrower unrelated products. Specifically, predatory lenders often add unnecessary insurance products to a mortgage loan, otherwise known as "packing", which increase loan costs to borrowers. Such unnecessary products mainly include different types of insurance such as regular mortgage insurance, fire and hazard, credit life, accident, health and involuntary unemployment insurance. Predatory lenders usually manipulate the borrower into buying such extraneous insurance products. Thus, the premium for such unnecessary insurance products is often added to the loan amount, and where the cost is not explicitly apparent to the borrower. Predatory lenders intimidate and manipulate borrowers into buying such products because the lenders make large commissions on the insurance premiums, especially when the premiums are paid in advance.

]]> Even though private mortgage insurance seems like a good idea, there is another side that is often not explored. Private mortgage insurance is an insurance policy that is required for all loans over an 80 percent loan to value ratio. Private mortgage insurance is for the benefit of the lender, not the borrower. It protects the lender against default by the borrower. It is an expense that the borrower pays for, for the sole benefit of the lender. When the property value exceeds the 80 percent loan to value ratio, the borrower is no longer required to pay for the private mortgage insurance premium. Thus, the borrower should and must contact their lender to have the insurance premium removed when the 80 percent loan to value ratio is exceeded.

Ultimately, insurance products packed onto the private mortgage insurance premium are unnecessary, and borrowers should shy away from them. Also, private mortgage insurance can be removed once the property value exceeds the 80 percent loan to value ratio as discussed above.

Option ARMs are Called Ticking Bombs

Colorado has had the highest foreclosure rate of any state since March, 2006, according to RealtyTrac, a California company that tracks foreclosure listings. According to the Denver Post, some experts think that option ARM loans will trigger a future wave of foreclosures if home values remain the same or decline.

]]> According to Herbert Sandler, chief executive of Oakland, California-based World Savings, which is one of the first and largest providers of option ARMs, if underwritten properly, the loans are good, low risk products. However, Sander also acknowledges that many lenders are not underwriting the loans properly.

Accordingly to Mark Fleming of CoreLogic, a Sacramento, California company that measures mortgage risk, option ARMs are ticking time bombs, and can become dangerous if used constantly.
Sandler argues that qualifying buyers for option ARMs should not be based on minimum-payment amounts, but rather on the actual rates behind the loan.

Among mortgages, option ARMs are among the most complex and confusing for consumers to grasp. According to William Klaess, a vice president with American Guaranty Mortgage in Greenwood Village, too many borrowers who take out option ARMs think they are getting a low fixed-rate loan and do not realize that their principal will grow. Klaess, who also oversees a mortgage help center on behalf of consumer advocate Tom Martino, said that option ARMs represent the biggest source of complaints he receives.

Consumer advocates say two types of borrowers should not take out the loans: (1) buyers stretching to afford a payment, and (2) seniors living on a modest fixed income. Unfortunately, such borrowers are the target for option ARMs.

U.S. Comptroller Encourages States to Adopt Standards Similar to Federal Guidance

According to Market Watch, the U.S. Comptroller of the Currency John Dugan, said that all banks and mortgages originators should use caution when offering exotic loans such as payment-deferral products to home buyers, not just federally regulated ones.

]]> It is now less than one month after federal regulators warned banks about making sure borrowers can pay the full amount of what they borrow, and that homeowners are aware of all of the terms of their mortgage. However, this government guidance does not apply to some state-regulated lenders. According to Dugan, the guidance should apply to state-regulated lenders. Dugan has urged state regulators to adopt similar standards to the federal guidance, aiming to protect borrows from exotic mortgage loan risks.

According to Dugan, many state-regulated mortgage companies do not have contact with federally regulated institutions. Regulators are not asking lenders to stop offering exotic mortgages such as interest-only loans. However, they are trying to educated mortgage loan customers about the risks associates with the different products and terms being offered such as payment increases.

Dugan believes that it is essentials for state regulators to adopt similar standards to address such risks.