On Thursday it has been reported that Federal Reserve Board Governor Susan Bies said that regulators were concerned about the rumored heavy commercial real estate exposure and also the risky mortgage lending practices at U.S. banks. Bies said "There are certain rapidly growing business lines in banking operations that are placing pressures on risk-management systems,"
In a report made Bies talks about the guidance on exotic mortgage products, also saying that the government regulators were putting much thoughts on the risk-management practices, with no concern to the risk that they could presently encounter. Bies cautioned that the said risk could very well be "heightened by a downturn in the housing market." An issue she would put focus on.
In the sub prime market, products are being extended to low-income, Bies states that in the past issues like that were regularly offered to borrowers who practices high-income.
She said to a statement that "These borrowers are more likely to experience an unmanageable payment shock at some point during the life of the loan, which means they may be more likely to default on the loan," warning people involve in the issue.
Bies who worries about banks which possibly face difficulties if capital markets increased it's irregular low risk-spreads. She also said "When risk spreads return to more 'normal' levels, banks need to be prepared for the resulting impact on liquidity and pricing," The statement were as obvious as it can be warning banks about their moves about the issue.
In continuing Bies statements, she also said "The absence of traditional underwriting controls may have unforeseen effects on losses realized in these products," Underlining the effects on the possible scenario on the products.
Bies who also worries on growing commercial real estate exposures, warning that some banks weren't consistent with growth in which she describes as "highly volatile asset class" the Fed and other regulators were worrying about the risk-management practices.
In conclusion Bies talks about the primary concerns for regulators was the possibility that banks could face legal and reputational damage if ever they failed to comply with the known "Bank Secrecy Act" and other laws & controls about it.
http://www.realestateportal.org/article.php?story=20060202121011629