Subprime Pains Lead to New Rules and Lower Volume

July 2, 2007

Federal regulators issued new requirements to curtail weak underwriting standards for the subprime mortgage market. The new guidelines require all banks, thrifts, and credit unions regulated by a federal agency to use the adjusted mortgage loan rate instead of the initial teaser rate to qualify all borrowers. The new guidelines also require lenders to capture more information to verify borrower incomes and capacity to repay the loan. Finally, lenders are required to offer a refinance out of an adjustable rate mortgage 60 days before the interest rate resets, without penalty.

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