some consumers do not actively shop for a lender or a mortgage, and they do not compare loan terms in light of their personal circumstances. instead they rely on one lender and accept the mortgage loan presented to them. mortgages that are appropriate for one borrower, however, may create problems for another. for example, some mortgages have low initial interest rates and monthly payments. but increases come later as the “ teaser period ” ends and payments rise to begin pay down of principal. borrowers whose budgets make the initial payment just manageable may have difficulty meeting these significant jumps in monthly payments and so are at risk of defaulting on their mortgages and losing their home. by shopping among lenders and products, consumers are also better able to determine whether a given loan feature is really an advantage. for example, some lenders have recently been more willing to waive proof of income when making a mortgage. but, they may charge a higher interest rate to cover the risk that the borrower may not be able to afford the mortgage. the customer however may save interest cost by making the effort to provide copies of tax returns and pay stubs. another example is that some lenders do not require their borrowers to pay their property tax and hazard insurance premiums into an escrow account. consumers need to ask lenders if their monthly payments will include funds for such an escrow account. if not, borrowers need to separately set aside savings to meet these obligations. lenders, for their part, should make it possible for consumers to engage in shopping for a mortgage. as i noted, last september the federal financial institution regulators issued interagency guidance on nontraditional mortgage products, which included both a focus on safe and sound lending practices as well as on consumer awareness and consumer protection. the guidance focuses on the responsibility of lenders to provide consumers with clear and balanced information at crucial decision - making points about the benefits and risks of nontraditional mortgage products. accordingly, the interagency guidance describes recommended practices for financial institutions in communicating with consumers while they are shopping, not just upon submission of an application or at loan consummation. specifically, the guidance recommends that institutions ’ promotional materials and descriptions of these products include information about, among other things, potential increases in consumers ’ payment obligations and the potential consequences of increasing principal loan balances and decreasing home equity. the guidance also recommends that institutions alert consumers to the amount of any prepayment penalty that may be imposed if the

for them. the booklet explains such features as payment shock and negative amortization. it also provides numerical examples that illustrate how consumers'payments can change and how their loan balances may increase over the term of the loan. the federal reserve also published a consumer education brochure titled : interest - only mortgage payments and option - payment arms - - are they for you? the brochure is designed to assist consumers who are shopping for a mortgage loan and is available in printed form and in electronic form on the federal reserve ’ s website, along with other consumer mortgage information finally, the federal reserve engages in numerous outreach activities and conducts research to help us better understand the financial services market and consumer behavior and the best approaches for assisting consumers. we sponsor consumer and industry surveys, hold public hearings, discuss issues with our consumer advisory council, and conduct consumer focus groups and other types of consumer testing, in addition to considering the public comments on proposed rules. recently, the federal reserve has engaged in outreach to a broad group of interested parties regarding nontraditional mortgages. our consumer advisory council, which includes consumer advocates and industry representatives, provided us with valuable information about nontraditional mortgage products during development of the interagency guidance. in addition, the federal reserve held a series of four public hearings on home - equity lending during the summer of 2006. one of the principal purposes of the hearings was to gather information to inform the federal reserve ’ s review of its truth in lending rules. a significant portion of the hearings was devoted to discussing nontraditional mortgage products, and in particular, whether consumers receive adequate information about these products. the hearings explored research on consumer behavior in shopping for mortgage loans and included discussions about the challenges in designing disclosures to more effectively communicate loan terms and risks to consumers. we will consider this information in developing plans and recommendations for revising the truth in lending rules, which require all creditors to provide consumers with disclosures about loan terms. many financial products are very sophisticated credit transactions, and the disclosures describing them are also complex and highly technical ; which can be difficult for some consumers to understand. to address this issue, the federal reserve is focusing in a more rigorous way on determining the effectiveness of disclosures. we conduct extensive consumer testing to determine what information is most important to consumers, when it is most useful for consumers to receive it, what language and formats work best, and how disclosures can be simplified, and better organized, to reduce complexity and information overload.