June 6, 2007 / 3:14 PM / 12 years ago

Bank regulators won't ban stated income loans -FDIC

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NEW YORK, June 6 (Reuters) - So-called stated-income mortgage loans should become an exception rather than the rule for U.S. lenders, FDIC Chairman Sheila Bair said on Wednesday.

Stated-income, or low-documentation, loans have proven themselves among the most susceptible to fraud and delinquency in the past year, especially when handed to the riskiest, or subprime, borrowers, analysts have said.

There “is the potential for fraud,” and some borrowers might well have received better terms if they proved their income, she said, addressing the annual meeting of the American Securitization Forum’s annual meeting in New York.

Lenders across the country have already reduced their use of stated-income loans in response to rising delinquency rates and poor prices for the mortgages in the secondary market. In many instances, lenders have raised credit score requirements above levels deemed subprime.

Regulators set to issue guidance on subprime underwriting probably won’t ‘do away’ with the low-documentation loan products in response to the criticism, she said in response to a question from a representative of Impac Mortagage Holdings Inc.(IMH.N).

((Reporting by Al Yoon; editing by Theodore d’Afflisio; Reuters Messaging: albert.yoon.reuters.com@reuters.net; Email: albert.yoon@reuters.com; +1 646-223-6347)) Keywords: USA SUBPRIME/BAIR DOCUMENTATION

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