Agencies issue subprime guidance: sources
WASHINGTON (Reuters) - U.S. banking regulators plan to issue eagerly awaited guidance on the subprime mortgage market as early as Thursday afternoon, two sources familiar with the matter told Reuters on Wednesday.
The proposed regulation affecting borrowers with poor credit histories will be issued by agencies, including the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.
The sources declined to comment on what the regulation will specifically include about mortgage products. The document is likely to allow the public to comment for at least 60 days before regulators finalize a new regulation, the sources said, speaking on condition of anonymity.
At issue is whether regulators will force lenders to qualify subprime borrowers based on their ability to make the highest possible monthly payments during the life of the loan, instead of the initial lower rate, according to banking experts.
"The idea would be to have in place some criteria by which institutions would be able to evaluate the effectiveness of their programs and whether or not there are potential safety and soundness and consumer protection issues there," one source said. "They (the lenders) should already be focusing on that."
In December, members of the Senate Banking Committee asked regulators to expand existing rules on how banks underwrite non-traditional mortgages to also include certain mortgages made to subprime borrowers.
The subprime loans are so-called "2-28 mortgages" that feature a fixed interest rate for two years before resetting as much as 6 percentage points higher.
The additional guidance on subprime mortgages will come at a time when rising delinquencies have reverberated throughout U.S. financial markets. A growing number of subprime borrowers face foreclosure and their lenders face insolvency.
In response to the growing concerns, a House Financial Services subcommittee announced on Wednesday it will hold a hearing soon about subprime mortgages and foreclosures.
No. 2 mortgage buyer Freddie Mac (FRE.N), in a move seen as front-running regulators, on Tuesday said it would stop buying most subprime loans as sold today and introduce its own product for lenders to offer to their riskiest customers.
Freddie's decision was criticized by the mortgage industry's main trade association, which said it would restrict credit to borrowers at a time when lenders saddled with rising delinquencies are already tightening guidelines.
Federal Reserve Chairman Ben Bernanke told congressional lawmakers on Wednesday the U.S. central bank has some concerns about the domestic mortgage market and is monitoring it closely.
Fremont General Corp. FMT.N, the fifth-largest U.S. subprime lender, closed down 24.5 percent at $8.80 on Wednesday after the company postponed its release of fourth-quarter results and its annual report.
(Additional reporting by Al Yoon in New York)
