Bank Regulators to Unveil New Subprime Loan Standards -- Reuters

by: Judith Levy

Bank regulators are expected Friday to release new standards for the issuance of subprime mortgage loans, Reuters reported Thursday. The guidelines, a draft of which was released in March, will instruct depository lenders on how to make loans to clients with impaired credit. The final version is expected to be very similar to the draft, which obliges lenders to work harder to determine the likelihood of long-term payments being made and warn clients of potential costs. It also advises lenders to evaluate the "borrower's ability to repay the debt by its final maturity at the fully indexed rate," a provision that concerns many lenders who are hoping for a standard closer to that which prevailed during the housing boom. John Dugan, Comptroller of the Currency, told Reuters earlier in the week that he expected the new standards to be emphatic about the need to stop issuing loans with little or no documentation of the borrower's capacity to repay. The five bodies issuing the standards are the Federal Reserve Board, the Office of the Comptroller of the Currency, the FDIC, the Office of Thrift Supervision and the National Credit Union Administration.

Sources: Reuters
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