The Nevada Division of Mortgage Lending (MLD) today issued guidance, effective July 1, for State-licensed mortgage brokers and mortgage bankers regarding the risks associated with non-traditional mortgage products.

The guidance is designed to protect consumers from taking on higher-risk, non-traditional mortgage loans without a full understanding of the terms of those loans.  Also known as “alternative” mortgages, non-traditional mortgage loans may include “interest-only” mortgages that allow a borrower to pay only the interest for the first few years of the loan and “payment option” adjustable-rate mortgages (ARMs) that include flexible payment terms for the borrower.  Historically, these types of products have been offered to high-income borrowers who were better able to comprehend and manage the risks associated with them.

“Issuing this guidance helps ensure that Nevada borrowers are better informed before they sign their loan paperwork,” said Joe Waltuch, Commissioner of the MLD.  “Mortgage brokers and mortgage bankers can use this guidance to offer mortgage products that are appropriately tailored for each individual borrower.”

The guidance is based upon the Conference of State Bank Supervisors (CSBS) and American Association of Residential Mortgage Regulators (AARMR) guidance released in late 2006 with one exception.  Sections applicable to depository institutions have been deleted because those institutions are licensed and regulated by the Financial Institutions Division (FID), and pursuant to requirements of the FDIC and other agencies, depository institutions are already subject to similar guidance.

The MLD’s guidance will remain in effect until it is superseded by regulations that are being developed by the FID in accordance with AB 329 of the 2007 Legislative session.

The MLD’s guidance can be viewed at http://mld.nv.gov/LettersNotices.htm.