The Regulators Step In The regulators are finally stepping in to make sure that real estate begins a soft landing rather than a hard crash.

"This fall, the Office of the Comptroller of the Currency and other financial regulators plan to issue guidance on mortgages for lenders under their supervision.

They'll focus on flexible-payment products, such as interest-only, adjustable-rate mortgages, which have become increasingly popular as families stretch to buy homes.

Analysts expect the upcoming regulatory missive will cause lenders to think twice about making no-interest mortgages to buyers who may already have a mountain of mortgage debt -- and just adequate income. That hesitance could remove some marginal buyers. Price slowdowns in the hottest metro areas may follow.

"Maybe this is the inflection point where appreciation stops," said Andy Laperriere, a managing director with the ISI Group, a New York-based economic research brokerage."

They even mention one of my favorites in terms of appreciation, Bakersfield.

"Meanwhile, fast-growing cities like Bakersfield, Calif., and Phoenix have seen a speculative surge, with homeowners buying second and even third homes on the gamble they'll be able to sell at a 20% to 30% profit in year.

Slowdown Already Apparent?

There have been a few signs that housing is close to peaking.

In California, price appreciation fell from 21% in February to 13% in May, says the California Association of Realtors.

Home equity loans, sometimes used to help borrowers cover the down payment, have also slowed. The annualized growth in home equity loans originated by commercial banks dropped from 16% in June to just under 10% in the first week of July, says ISI.

Independent of regulatory actions, shifting interest rates have affected buyers' behavior. Adjustable-rate mortgages, usually linked to short-term yields, have risen to a three-year high. But 30-year fixed rates -- tied to the 10-year Treasury note -- have fallen from a year ago.

As a result, the gap between a conventional 30-year mortgage and a one-year ARM has fallen to 109 basis points, near the lowest since late 2001.

A year ago, that spread was nearly twice as large.

That's made ARMs less attractive. These mortgages recently accounted for 28% of home loan applications, the least since March 2004, says the Mortgage Bankers Association.

If you have an ARM it's definitely time to think about refinancing.

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ARMS  ¶ The Regulators Step In