WASHINGTON -  In hot housing markets, banks have offered borrowers a way to take the sting out of big payments in the early years of the loan with innovative mortgage products.

While such mortgages have helped put people into homes, the popularity of such products has sparked "a race to the bottom" of lending standards, said Sen. Wayne Allard, a Republican from Colorado, addressing an open session of the Senate Banking Committee.

Lending regulators, responding to Allard's question whether "significant numbers of borrowers are going to default" if they cannot sell or refinance, said they saw no signs of widespread defaults. They said, however, that they were concerned some borrowers are over their heads in mortgage debt.

There has been a "very slight" rise in mortgage delinquencies issued during the housing boom, said Sandra Thompson, the Federal Deposit Insurance Corporation's acting director for Supervision and Consumer Protection.

A review by regulators near the height of that boom in mid-2005 found "indications of loosening in underwriting standards," unqualified borrowers being granted too large a loan and other credit risks, Thompson said.

In recent years, borrowers "who may not otherwise qualify for traditional mortgage loans and may not fully understand the associated risk," have relied on such mortgages to purchase a home, said Kathryn Dick, deputy comptroller of the Office of the Comptroller of the Currency, in prepared remarks to the panel.

In December, regulators proposed a rule that would wave some borrowers away from these risky mortgage products.

The proposal would force lenders to explain the impact and long-term costs of some new mortgage products and assume a worst-case scenario in a borrower's ability to repay.

The industry has called new disclosure rules and other consumer protection provisions complex and unwieldy.

Interest only loans allow homeowners to pay fees that do not lower the principal balance for a set period of time while option ARMs allow the homebuyer to adjust his interest rate over the life of the loan.

About $432 billion of interest-only loans and payment-option ARMs were originated during the first half of 2006, said Thompson, citing research published by Inside Mortgage Finance.

The senate panel heard that some borrowers might rely on their increasing wages or rising home values to ease the burden of payments and make the investment worthwhile.

But the white-hot housing market that spawned new mortgage products has cooled. Earlier this month, the National Association of Realtors predicted the nation's median existing home price would be up 2.8 percent in 2006 - compared to 12.4 percent last year.

While he expressed concern about the widespread use of nontraditional, or 'exotic', mortgage products, Sen. Allard said "these are not necessarily bad products as long as they are carefully utilized."