With the number of loans shrinking as mortgage rates rise, bank regulators are concerned that lenders will relax standards in order to keep profits up [Wash Post].
Speaking to the New York Bankers Association, John M. Reich, director of the Office of Thrift Supervision, warned that some lenders are making it too easy for unsophisticated borrowers to take on risky nontraditional mortgages that they may not fully understand.
The OTC is expected to issue a guidance which will restrict the use of loans such as interest only and option ARMS. Two thirds of mortgages in the DC area would fall under this guidance ruling up from 2.2% in 2000.
When the OTC is talking about guidances, I’d be worried because they are worried. No sugar-coating here.
This type of creative financing has provided one of the significant catalysts for the housing boom over the past five years. I would guess that the entry-level and lower end of the demographic spectrum, including first time flippers and investors are especially vulnerable. More restrictions on financing will reduce demand further.