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WASHINGTON (AP) - Federal bank regulators, worried about a surge in defaults on high-risk home mortgages, on Friday called on lenders to exercise caution in making subprime loans and strictly evaluate borrowers' ability to repay them.
The proposed guidance issued by the Federal Reserve and the other four federal agencies that regulate banks, thrifts and credit unions, comes in an increasingly troubled market for subprime mortgage loans. Home-mortgage delinquencies and foreclosures are spiking, especially for people who took out subprime mortgages — higher-interest loans for those with blemished credit records or low incomes who are considered higher risk — during the sizzling housing boom that waned in the second half of 2005.
The regulators said the guidelines, if formally adopted by the agencies and followed by lending institutions, could result in fewer borrowers qualifying for subprime loans. The mortgage industry had hoped for less stringent guidelines.
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