NAR Says Regulators' High Standards and Consumer Education Important for Nontraditional Mortgages

WASHINGTON, October 03, 2006

Guidance on nontraditional mortgages issued last week by federal banking regulators will help ensure that lenders inform consumers about the risks related to nontraditional financing options, including interest-only and option-payment adjustable rate mortgages, said the National Association of Realtors®.

NAR strongly supports efforts to educate consumers about these mortgages, and Realtors® have been educating would-be homebuyers about nontraditional mortgages for quite some time.

"The National Association of Realtors® is very concerned that some borrowers are using nontraditional mortgages without fully understanding the risks involved, and supports the federal banking agencies' new guidance requiring lenders to explain these mortgages and their associated risks to consumers," said Thomas M. Stevens, NAR president from Vienna, Va., and senior vice president of NRT Inc.

"It is imperative that borrowers fully understand the risks associated with such products, which is why, last year, NAR and the Center for Responsible Lending created the consumer education brochure, Specialty Mortgages: What are the Risks and Advantages? to help our Realtor® members counsel their clients and customers, adding value to the real estate transaction," said Stevens. 

In addition to proposing that lenders educate consumers about the risks of nontraditional mortgages, the final guidance also recommends that lenders review current underwriting standards and improve risk management strategies. While lauding consumer education efforts, NAR cautioned federal regulators in its submitted comments on the proposed guidelines not to restrict innovation in mortgage lending and, by extension, opportunities for homeownership.

"When used correctly, nontraditional mortgages are viable options for many qualified homebuyers, and NAR supports lenders that make these loans responsibly," said Stevens. "We encourage both regulators and lenders to monitor the impact of these new guidelines closely to determine if the guidelines unintentionally limit financing options for consumers who would otherwise benefit from nontraditional mortgages."

To obtain a copy of Specialty Mortgages: What are the Risks and Advantages? ask a Realtor®, or access the brochure at www.REALTOR.org by searching on "Specialty Mortgage."

The National Association of Realtors®, "The Voice for Real Estate," is America's largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.

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Information about NAR is available at www.REALTOR.org. This and other news releases are posted in the Web site's "News Media" section in the NAR Media Center.