Friday, January 05, 2007

FED: A book about ARM Loans

The Federal Reserve Board and the Office of Thrift Supervision are thinking that American home loan borrowers are not well enough informed about some of the new loan products available today. This, to me and I hope I'm not being offensive, is rather like suggesting that cigarette smoke may actually be bad for us. Ya think?

The agencies have issued a revised version of the Consumer Handbook on Adjustable-Rate Mortgages, a.k.a. the CHARM booklet. Regulation Z requires every lender to provide a copy or suitable substitute to every borrower who applies for an ARM loan. The updated booklet describes interest only and option payment mortgages.

Back in Missouri, we called this closing the barn door after the horse was already out. But better late then never, I guess.

Today, adjustable-rate, interest-only loans constitute the highest percentage of second mortgages underwritten by the same bank that originated the first loan, according to The Wall Street Journal. According to UBS (and reported in WSJ), a high percentage of borrowers with delinquent, defaulted and foreclosed loans have second mortgages, which they've usually taken out at the same time as their first loans to buy a house.

I smell smoke. Let's see if this new booklet can help put out the flames before it all burns down.