To begin with, the undervaluation of risks and the lack of transparency resulted in unprecedented levels of uncertainty and mistrust in the financial markets.
The proposed guidance also lists recommended practices to address other risks. When negative amortization is possible, the guidance suggests that institutions alert consumers about the consequences of increasing principal balances and decreasing home equity. If both reduced- and full-documentation loan programs are offered, the draft guidance advises institutions to inform consumers if they will pay a pricing premium for the reduced-documentation loan.