Guidance will provide consumers with better understanding of high-risk mortgages

The Office of Financial and Insurance Services (OFIS) has issued a set of regulatory “best practices” covering the marketing of nontraditional mortgages by state-licensed entities, OFIS Commissioner Linda A. Watters announced today.

These best practices are based upon guidance developed by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) and apply to state-licensed mortgage brokers and companies. 

The guidance is designed to promote consistent regulation in the mortgage market and to clarify how residential mortgage providers can offer nontraditional mortgage products in a way that clearly discloses the risks borrowers may assume.

 “This guidance is designed to level the playing field in the mortgage market in order to protect consumers from taking on high-risk mortgages without having a full understanding of the terms of such loans,” Watters said. “These mortgage products are quite complicated and may not be appropriate for many consumers, so homebuyers need to be fully informed before they make such a major decision.”

Nontraditional mortgage products include interest-only mortgages and payment option adjustable-rate mortgages. These products allow borrowers to exchange lower payments during an initial period for higher payments later for the life of the mortgage.

The CSBS/AARMR guidance parallels final guidance released on September 29, 2006 by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the National Credit Union Administration. 

The interagency guidance, however, applies only to insured financial institutions and their affiliates.  To promote consistency, the CSBS/AARMR guidance substantially mirrors the interagency guidance, except for the deletion of sections inapplicable to non-depository institutions.

Commissioner Watters commented that CSBS and AARMR’s goal is for all states to adopt the guidance so that all consumers will be equally protected and all originators of residential mortgages will be subject to similar supervisory guidance.

The regulatory guidance can be found on the OFIS web site at www.michigan.gov/ofis under “What’s New.”

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