Office of Thrift Supervision Director John Reich warned Thursday that some thrifts may not be fully prepared to deal with the risks that interest-only and other exotic mortgages pose.
Thrifts and others should pay particular attention to "risk layering," the practice of loading a home loan with more than one nontraditional feature, he said.
"In the wake of the refi boom, the market competition from overcapacity in the industry seems to be promoting lending practices that may prove imprudent in the long term," Mr. Reich told attendees at an America's Community Bankers conference in Naples, Fla., according to a copy of prepared remarks. "Risk layering tends to multiply the risks involved, not just add to them."
