Mortgage Insurers Worried by Piggy-Backs, 'Risky' Loans.

WASHINGTON -- Mortgage insurers are concerned that regulators are not acting quickly enough to put the brakes on risky nontraditional loans, particularly payment-option mortgages with "piggy back" second liens.

The Mortgage Insurance Companies of America is urging federal banking regulators to act "quickly" and finalize underwriting guidance on interest-only and payment-option adjustable mortgages.

MICA executive vice president Suzanne Hutchinson warned in a July letter that "recent trends show alarming signs of on-going undue risk-taking that puts both lenders and consumers at risk."

Private mortgage insurers are "deeply concerned about the potential contagion effect of poorly-underwritten or unsuitable mortgages," she said in the July 10 letter.

Federal regulators are not expected to issue final guidance for a few more months. Most mortgage industry trade groups complained strongly that the underwriting guidelines represent an overreaction and urged the regulators to rethink the guidance or withdraw it.

Meanwhile, house price appreciation has slowed dramatically since the proposed guidance was first issued last December.

This slowdown is raising new concerns that homeowners with relatively new POAs could find themselves trapped 12 to 36 months down the road and unable to refinance into another POA or a safer loan.