New guidance from federal banking regulators could dampen the red-hot market for nontraditional mortgages that now provide over half of the collateral flowing into non-agency MBS. Joint guidance issued by five banking agencies focuses mostly on loan underwriting and consumer protection issues in the origination of option ARMs and interest-only loans, lumped together with other kinds of Alt A product under the label “nontraditional mortgages.” Among the key recommendations is that...