U.S. federal financial regulatory agencies are seeking comment on a proposed statement to deal with sub-prime mortgage lending, amid concerns that the segment is running into some trouble.

The proposed Statement on Subprime Mortgage Lending is intended to address certain risks and emerging issues relating to subprime mortgage lending practices, specifically, particular adjustable-rate mortgage (ARM) lending products.

The proposal addresses concerns that subprime borrowers may not fully understand the risks and consequences of obtaining these products, and that the products may pose an elevated credit risk to financial institutions, it says. In particular, the proposed guidance focuses on loans that involve repayment terms that exceed the borrower’s ability to service the debt without refinancing or selling the property.

BCA Research noted earlier this week that the lower-rated home equity indexes posted another dramatic loss during the past week. “Investors have shifted from wondering how many sub-prime borrowers are at risk, to how exposed the broader financial system might be. Tighter lending standards means that delinquencies will creep higher, particularly in the sub-prime end of the market,” it said.

“Sub-prime lenders are heavily reliant on liquidity and can remain in business for only a limited time once access to credit dries up. Ultimately however, we expect the damage will be contained to the sub-prime market,” BCA said. “Most homeowners have little reason to fall behind in their mortgage payments so long as they have a job, and their income is growing. Corporate bond spreads confirm there has been limited contagion so far.”

The regulators note, “The statement specifies that an institution’s analysis of a borrower’s repayment capacity should include an evaluation of the borrower’s ability to repay the debt by its final maturity at the fully indexed rate, assuming a fully amortizing repayment schedule. The statement also underscores that communications with consumers should provide clear and balanced information about the relative benefits and risks of the products.”

The agencies request comment on all aspects of the proposed statement and are particularly interested in public comment about whether: these arrangements always present inappropriate risks to institutions and consumers, or the extent to which they can be appropriate under some circumstances; the proposed statement would unduly restrict existing subprime borrowers’ ability to refinance their loans; other forms of credit are available that would not present the risk of payment shock; the principles of the proposed statement should be applied beyond the subprime ARM market; and, an institution’s limiting of prepayment penalties to the initial fixed-rate period would assist consumers by providing them sufficient time to assess and act on their mortgage needs.

Comments are due 60 days after publication in the Federal Register.