New standards for sub-prime loans

Five federal agencies that regulate banks have agreed on new standards for sub-prime mortgages and are expected to release them today, several people familiar with the standards said Thursday.

The standards will largely resemble a draft version released in March, the sources said.

The draft calls on lenders to assess a “borrower’s ability to repay the debt by its final maturity at the fully indexed rate.” The fully indexed rate is what a loan would be expected to be reset at after any teaser rates expire.

That provision is tougher than lenders had hoped because it could crimp loan volume. The draft also urges lenders to warn borrowers about hidden costs.

The five agencies are the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the National Credit Union Administration.