To address those concerns and prevent supervised institutions from making unaffordable mortgage loans, the Federal Reserve and the other federal banking agencies issued the Interagency Guidance on Nontraditional Mortgage Products Risks in 2006 and the Interagency Statement on Subprime Mortgage Lending in 2007.
The nontraditional mortgage guidance highlights sound underwriting procedures, portfolio risk management, and consumer protection practices that institutions should follow to prudently originate and manage mortgage loans with payment option and interest-only features. A key aspect of both statements is the recommendation that a lender's analysis of repayment capacity should include an evaluation of the borrower's ability to repay debt.