February 21, 2007

John M. Reich
Director
Office of Thrift Supervision
700 G Street, NW
Washington, DC 20552

Sheila C. Bair
Chairman
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

Ben S. Bernanke
Chairman
Board of Governors of the
Federal Reserve System
20th and Constitution Avenue, NW
Washington, DC 20551

John C. Dugan
Comptroller of the Currency
Office of the Comptroller of the Currency
250 E Street, SW
Washington, DC 20219

JoAnn Johnson
Chairman
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428

Neil Milner
President and CEO Conference of State Bank Supervisors
1155 Connecticut Ave., 5th Floor
Washington, DC 20036-4306

Dear Director Reich, Chairwoman Bair, Chairman Bernanke, Comptroller Dugan, Chairwoman Johnson, and Mr. Milner:

We commend you for issuing the Guidance on Nontraditional Mortgage Product Risk this past fall. We are hopeful that the guidance will curb some of the abuses associated with high risk, non-traditional loan products. However, despite your recent efforts, we remain concerned that millions of high-risk, unaffordable loans are not covered by the guidance and that massive payment shocks built into these loans could cause a foreclosure crisis that eclipses the displacement caused by Hurricane Katrina.1 Specifically, subprime hybrid 2-28 and 3-27 adjustable rate mortgages (ARMs) pose the risk of the very severe payment shock that the guidance is intended to prevent.
We therefore call upon you to help protect American families by issuing supplementary guidance to clarify that subprime hybrid ARMs are subject to the same underwriting standards as non-traditional mortgages, particularly the requirement of underwriting at the fully-indexed rate.

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