Bank regulators agree on subprime rules: sources

WASHINGTON (Reuters) - Bank regulators have agreed on new standards for subprime mortgage loans and are prepared to release it Friday, several sources familiar with the matter said Thursday.

The five regulators released a draft of the guidance in early March, and have been consulting both internally and externally on how to refine the standards that will guide how depository lenders make loans to borrowers with damaged credit.

The draft called on mortgage lenders to take more care when dealing with less credit-worthy borrowers by assessing whether they can cover long-term payments and warning them about hidden costs.

It also asks lenders to weigh a “borrower’s ability to repay the debt by its final maturity at the fully indexed rate.”

That provision is tougher than many lenders had hoped, as qualifying borrowers at the “fully indexed rate” could put a crimp in standards that evolved during the housing boom.

The sources, who are familiar with the regulators’ deliberations, said the final guidance will largely track the earlier draft.

This week, John Dugan, Comptroller of the Currency, told Reuters that he expected the guidance to strengthen language to curb the practice of little or no documentation of a borrower’s ability to repay.

Regulators hope to release the guidance before noon Friday, one source said.

The guidance will come from the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Office of Thrift Supervision and National Credit Union Administration.