Officials consider new restrictions

Subprime mortgages are designed for people with weak credit or erratic income.
LOS ANGELES TIMES
WASHINGTON -- As more Americans default on home loans, federal regulators and members of Congress are looking to place new restrictions on mortgages for people with shaky credit, a move that could make it harder for many people to buy homes or refinance their mortgages.
Government officials are weighing several proposals to address problems that have rattled the mortgage lending industry and left growing numbers of people in homes they cannot afford.
Proposals
These measures include requiring that such loans be granted only to those who have the ability to make payments for the entire mortgage, rather than an initially cheap "teaser" rate that is guaranteed to shoot up in cost, typically adding hundreds of dollars to the monthly fee.
Another proposal would ensure that consumers get enhanced disclosures about their loans, so that fees and rate hikes do not catch them by surprise.
Regulators, under pressure from Democratic lawmakers, are now trying to put together new guidelines on the high-cost loans, which were conspicuously omitted from a recent regulatory statement on untraditional mortgages.
"We think additional guidance is necessary to address abuses in the market," Kevin Murki, a spokesman for the Office of the Comptroller of the Currency, said this week. "But we also want to be careful not to impose a regulatory standard that goes too far" and freezes out worthy borrowers, he added.
Subprime mortgages
The issue has emerged as growing numbers of borrowers with subprime mortgages -- loans designed for people with weak credit or erratic income -- fall behind in their payments.
There also have been growing signs of pressure on individual borrowers who were enticed into such mortgages by terms that seemed appealing but became onerous as their monthly payments shot up and home values fell.
The matter has proven troubling for officials, because the high-cost loans have helped make home ownership possible for millions of people with credit problems or limited finances. Such loans soared in usage in recent years as home prices shot up but incomes were generally flat.