FedFacts

Agencies Offer Illustrations Describing Nontraditional Mortgage Products

As part of an ongoing effort to help educate the public on nontraditional mortgage products, federal bank, thrift and credit union regulatory agencies issued final illustrations earlier this year that explain the risks of those products. The illustrations are part of the 2006 Inter-agency Guidance on Nontraditional Mortgage Product Risks.
Institutions are not required to use these illustrations, but the representations can help consumers get clear and balanced information about nontraditional mortgages before choosing a product or selecting a payment option for an existing mortgage. Note that these illustrations are not pictures, but rather:

• a narrative explanation of nontraditional mortgage products,
• a chart comparing interest-only and payment option adjustable rate mortgages (ARMs) to a traditional fixed-rate loan, and
• a table that could be included with monthly statements for a payment-option ARM, showing the impact of various payment options on the loan balance.

The illustrations can be downloaded from www.federalreserve.gov/newsevents/press/bcreg/20070531b.htm.