by Calculated Risk on 4/04/2006 11:54:00 AM

UPDATE: Finally, here is the MBA's response to the new guidance.

Mortgage lenders, operating within this country’s sophisticated real estate finance system, respond to a number of influences in determining their ability to originate mortgages in manner that is profitable, as well as safe and sound. The primary influence for lenders are the signals received from secondary mortgage market investors. A lender originating a large number of mortgages with an unacceptable level of risk will find itself facing significant price disadvantages in the market. These signals prompt lenders to alter product features, introduce new features and remove features that do not work. These product changes are immediate. In this manner, the private market can and does correct for excess risk more quickly than can a regulator who necessarily must move at a more deliberate pace. MBA believes that market signals have already addressed many of the concerns expressed by the Agencies in the Proposed Guidance.

Emphasis added.

In simple English: Let the market provide guidance.

Original Post: The comment period ended on March 29th. Today the FDIC posted some more comments (35 total).

From the American Bankers Association:

While the banking industry agrees that these products need to be carefully managed, the industry has a number of concerns about the proposed Guidance. In brief, we believe that:

1. The Guidance overstates the risks of these mortgage products.
2. The Guidance is overly prescriptive and needs to be made more flexible and clearer.
3. The Guidance combines safety and soundness guidance with consumer protection guidance, creating confusion that is best addressed by separating them.
4. The Guidance's detailed consumer protection recommendations add a layer of additional disclosure before and around the legally required Regulation Z disclosures, thereby perhaps creating significant compliance problems.
5. The Guidance's new consumer protection will only apply to regulated financial institutions and their affiliates and not to other lenders, which is inconsistent with other consumer provisions under Regulations B and Z and Section 5 of the Federal Trade Commission ACT (unfair and deceptive practices) and which leaves a significant portion of the mortgage industry unaffected.

Looks like fun reading. Enjoy.