State adopts mortgage protocols

The state Department of Banking has adopted guidelines for state-licensed mortgage brokers intended to help educate consumers about nontraditional mortgages.

They pertain mainly to the marketing of interest-only and option ARM loans, said state Deputy Banking Commissioner Alan Eicchetti.

The guidelines detail various risks and qualifications, among other information, pertaining to the high-risk mortgages, which present borrowers with the greatest "likelihood of getting into trouble," Eicchetti said.

While nontraditional mortgages can be a smart investment for certain borrowers, people should be aware of all inherent risks and components before deciding on a mortgage, he said.

The guidelines give all statelicensed brokers uniform recommendations for marketing such mortgages, he said.

"(They) give advice to people that underwrite these loans," Eicchetti said, adding that the intended result is to better educate borrowers. "This is an effort to help consumers."

The newly adopted state guidelines largely mirror federal ones adopted in October.

The Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators introduced federal guidelines last month, but those pertain only to federally regulated financial institutions, Eicchetti said. The state guidelines apply to statelicensed brokers at insured financial institutions and their affiliates.

"These guidelines are designed to level the playing field in the mortgage market in order to protect consumers from taking on high-risk mortgages without having a full understanding of the terms of such loans," state Banking Commissioner Howard F. Pitkin said in a written statement.

All states are being urged to adopt guidelines that mirror the federal ones already in place, ensuring that consumers will be equally protected in all states and mortgage underwriters everywhere will be subject to similar standards, Pitkin said.