THE OFFICE OF THE COMPTROLLER OF the Currency (OCC) has issued new guidelines to lenders regarding non-traditional mortgages, requiring them to fully explain the loans and ensure that borrowers qualify for the life of the loan and not just for the initial rate.

The guidance, as the set of standards is called, went into effect in September and applies to all federally regulated banks, thrifts, and credit unions. The Conference of State Banking Supervisors has indicated it will adopt the standards to cover lenders not regulated by the OCC.

Under the guidance, lenders who offer loans such as interest-only or payment-option ARMs would generally need to obtain more documentation from borrowers and make sure they could afford the payments when the loan resets.

“The regulators aren't putting an end to these loans or saying they're bad loans,” says OCC spokesperson Kevin Mukri. “They're giving consumers information and disclosure when they're shopping for a loan instead of at closing when you get the 18-inch stack of papers to sign. ... It's to prevent people from losing their homes in three years.”

The Mortgage Bankers Association criticized the new guidance, saying that while well-intentioned, it discourages innovation, stifles competition by requiring all banks to use the same underwriting standards, and limits consumer access to affordable interest-only options.