If a lender offers non-traditional or subprime loan products and also offers loans that have two or more risky characteristics, the examiners must determine whether the increased risks are taken into account as part of the underwriting policies. They must also examine whether any mitigating factors are required for approval and whether actual underwriting practices conform with policies.
According to the examiner guidelines, risky characteristics include: limited or no documentation of income, assets and/or employment; simultaneous second lien; negative amortization, option payment or interest-only features; introductory rate 200 basis points or more below fully-indexed rate; and balloon clauses.
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