The federal banking agencies have issued final guidance on nontraditional mortgage loans. They also issued a document for public comment on proposed illustrations of consumer information for nontraditional mortgage products. They also issued a two page addendum to the guidance issued last year on home equity lending. Here is a link to the press release. http://www.ots.treas.gov/docs/7/776046.html

The information should be published in the Federal Register soon.

I did not see an effective date of this guidance. Any ideas?

The final guidance was just published in today's issue of the Federal Register. It did not include an effective date. The notice of proposed illustrations of consumer information were also published in today's issue. Comments on the proposed illustrations are due by 12/4/06.

Since there was no effective date, does that mean we what for the proposed illustrations to be finalized before we have to implement any new disclosures?

How does this guidance apply to loans we fund and immediately sell?

As long as the products are considered "nontraditional," then I think it applies. It doesn't matter that you fund and immediately sell them. If you are regulated by one of the agencies that issued the guidance, then I think they will expect you to review the way you underwrite such loans and the way you market the product. You would need to ensure that your underwriting guidelines address the new guidance and you need to develop some disclosures to provide to applicants for such products that clearly explain the way the products work and the payment shock risk.

I understand that a traditional HELOC product does not fall under the new "guidelines" for non-traditional mortgages (although they do have some requirements under the Addendum to Credit Risk Mgmt Guidance for HE Lending). What about bridge loans or construction loans? We have offered these at fixed rates and interest only for short periods of time - usually one year or less. The bridge loans are closed end, interest only payments due monthly and the construction loans are closed-end lines of credit, interest-only payments due monthly. While these both are interest only mortgage loans (that don't fall under a HELOC), I do not believe they fall into the "non-traditional" defintion. Any thoughts since the guidance it pretty vague?

I hadn't thought about this product, but you raise an interesting point. It does not appear, in reading throught the guidance, that bridge-type loans are contemplated for additional disclosures.

As far as HELOCs are concerned, doesn't seem that the disclosure on page 5 in the "what you should know about Home Equity Lines of Credit" booklet under "How will you repay your home equity plan" is sufficient notice that if you only pay interest on your loan, you will owe the entire balance at the end? Does anyone have any clue as to what additional disclosures they will give on HELOCs?