+--------+---+--------------------------+--------+--------------------+---+
| # O    | # |                          |        |                    | # |
|        | # |                          |        |                    |   |
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|        | 0 |                          |        |                    |   |
|        | 0 |                          |        |                    |   |
|        | 5 |                          |        |                    |   |
|        | - |                          |        |                    |   |
|        | 4 |                          |        |                    |   |
|        | 6 |                          |        |                    |   |
+--------+---+--------------------------+--------+--------------------+---+
|        | * |                          |        |                    |   |
|        | * |                          |        |                    |   |
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|        | L |                          |        |                    |   |
|        | L |                          |        |                    |   |
|        | E |                          |        |                    |   |
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|        | I |                          |        |                    |   |
|        | N |                          |        |                    |   |
|        | * |                          |        |                    |   |
|        | * |                          |        |                    |   |
+--------+---+--------------------------+--------+--------------------+---+
| ## Com |   |                          |        |                    |   |
| ptroll |   |                          |        |                    |   |
| er of  |   |                          |        |                    |   |
| the Cu |   |                          |        |                    |   |
| rrency |   |                          |        |                    |   |
|        |   |                          |        |                    |   |
| > A    |   |                          |        |                    |   |
| dminis |   |                          |        |                    |   |
| trator |   |                          |        |                    |   |
| > of   |   |                          |        |                    |   |
| > Na   |   |                          |        |                    |   |
| tional |   |                          |        |                    |   |
| >      |   |                          |        |                    |   |
|  Banks |   |                          |        |                    |   |
+--------+---+--------------------------+--------+--------------------+---+
| ## Su  |   | ## Nontradi              | ##     | ##                 |   |
| bject: |   | tional Mortgage Products | Descri | Request for Commen |   |
|        |   |                          | ption: | t on Proposed Nont |   |
|        |   |                          |        | raditional Mortgag |   |
|        |   |                          |        | e Product Guidance |   |
+--------+---+--------------------------+--------+--------------------+---+

**TO:** Chief Executive Officers of All National Banks, Federal Branches
and Agencies, Department and Division Heads, and All Examining Personnel

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 (agencies) are seeking comment on proposed guidance for
nontraditional mortgage lending products. This notice and request for
comment was published in the *Federal Register* on December 29, 2005
(attached).

Nontraditional mortgage products include "interest-only" mortgage loans,
where a borrower defers loan principal for a specified period, and
"payment option" adjustable-rate mortgages, where a borrower has several
payment options including the potential for negative amortization. In
addition, institutions are increasingly combining these types of
products with other higher-risk practices, such as simultaneous
second-lien mortgages and the use of reduced documentation in the
evaluation of an applicant's creditworthiness.

While innovations in mortgage lending have the potential to benefit
consumers, the agencies are concerned that increasingly liberal product
terms and underwriting standards present heightened risks that
institutions must manage carefully. We are also concerned that
nontraditional mortgage products continue to be offered to a wider
spectrum of borrowers, including some who may not fully understand the
associated risks.

The proposed guidance discusses the potential for heightened risk levels
and the importance of carefully mitigating risk. It specifically
addresses loan terms and underwriting criteria, portfolio and risk
management practices, and consumer protection concerns that may be
raised by nontraditional mortgage loan products. The agencies have
developed the proposed guidance to help institutions offer these
products in a safe and sound manner and in a way that clearly discloses
the potential risks that borrowers may assume.

Comment is requested on all aspects of the guidance, particularly
expectations for comprehensive debt service qualification standards.
Comments will be accepted through February 27, 2006.

For further information, contact Gregory Nagel, national bank examiner,
Credit Risk Policy Division, at (202) 874-5170.

Barbara J. Grunkemeyer

Deputy Comptroller

Credit Risk Division

Attachment: [70 FR
77249](http://www.occ.treas.gov/fr/fedregister/70fr77249.pdf)

\[http://www.occ.treas.gov/fr/fedregister/70fr77249.pdf\]