Treasury Sets New Guidelines to Stem Rising Delinquency Threat

The U.S. Treasury is proposing guidelines to financial institutions designed to protect seekers of home loans from excessive risk. During the housing boom that lasted until the second half of last year, many individuals took out "subprime" mortgages -- high-interest loans for people considered to be poor credit risks -- with adjustable interest rates. When those rates go up, monthly payments can become dangerously difficult for just those people who are the least equipped to pay them. Many in the industry believe the bottom has yet to be reached in the housing market, and any rise in foreclosures in subprime mortgages invariably hits low-income families the hardest. Foreclosures increased in the second quarter, with the highest proportion those of subprime borrowers. These latest guidelines follow directions given by federal regulators in September instructing banks to ensure that borrowers understand the risks involved in interest-only and other nontraditional mortgages.
• Sources: Wall Street Journal, Newsday
• Related commentary: Fed Regulators Restrain CRE Lending, Mortgage Applications Perking Up, Masked Mortgages (OC Register.com)
• Potentially impacted ETFs: iShares S&P Global Financials (IXG), Vanguard Financials ETF (VFH), streetTRACKS KBW Bank ETF (KBE), Regional Bank HOLDRs Trust (RKH)

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