NAR Welcomes Federal Guidelines on Specialty Mortgages

The National Association of Realtors welcomed proposed guidelines from the federal financial regulatory agencies on specialty mortgage products that allow consumers to defer repayment of the home mortgage principal and interest.

“The guidelines appear to be consistent with NAR’s view that specialty mortgages are not appropriate for everyone. Homebuyers should consult a Realtor to learn more about different financing options, their implications over time and what types of mortgages might work best for them,” said NAR President Thomas M. Stevens, senior vice president of NRT Inc. “While specialty mortgage products have helped many borrowers finance the American dream of homeownership, NAR wants to help borrowers understand the risks before they take out an interest-only or payment-option adjustable-rate mortgage.”

The Federal Reserve Board, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency and Office of Thrift Supervision issued the proposed guidelines on non-traditional mortgages, such as interest-only mortgage loans where borrowers pay no principal for the first few years of the loan and payment-option adjustable-rate mortgages where borrowers are given flexible payment options, including the potential for negative amortization.

While the agencies recognize that innovative mortgage products can benefit some consumers, they are concerned that non-traditional mortgages are being offered to sub-prime and other borrowers who may not fully understand the risks that come with these products. The five federal agencies also expressed concerns that these mortgage products present important risks that must be managed. During the public comment period, NAR will carefully assess the proposed guidelines to determine whether they are so strict that they could unduly restrict the availability of non-traditional mortgages that are good options for some borrowers, especially in high-cost areas.

Realtors share the agencies’ concerns about the need for consumer education. NAR teamed with the Center for Responsible Lending last summer to issue a brochure that informs homebuyers about the risks and advantages of specialty mortgage products.

The “Shopping for a Mortgage? Do Your Homework First” brochure, which is available at www.realtor.org and www.realtor.com, is part of a NAR’s consumer education campaign addressing specialty loans and abusive lending practices.

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.