Lenders & Brokers Beware...

The Fed has its eye on you...

The federal agencies that regulate banks have been evaluating the risks to lenders and examining banks' lending policies. Federal regulators are paying close attention to increasingly popular high-risk mortgages and the credit risks they pose for banks, the government's top thrift regulator said Thursday.

The remarks by John Reich, director of the Office of Thrift Supervision, were in line with expressions of concern by several bank regulators in recent months over the popularity of so-called interest-only or pay-option adjustable-rate mortgages. The regulators do not seek to stanch innovation by banks, but to encourage sound banking principles, Reich said.

Consumers increasingly have been using them to buy homes they otherwise could not afford. And banks and thrifts have been turning to them to maintain their loan volume and profits in a competitive market, sometimes lowering standards for extending credit, Reich said.

"We are increasing our vigilance. ... We are asking our examiners to dig deeper into loan portfolios to understand the risks individual institutions are assuming," he said in a speech to the New York Bankers Association.

"One of the risks we are closely monitoring involves the proliferation of alternative or nontraditional mortgage lending products," Reich said.

Copies of his speech were distributed in Washington by the thrift agency, which is part of the Treasury Department.