Washington, D.C. ? Federal bank regulators, worried about a surge in defaults on high-risk home mortgages, on Friday called on lenders to exercise caution in making subprime loans and strictly evaluate borrowers’ ability to repay them.

The proposed guidance issued by the Federal Reserve and the other four federal agencies that regulate banks, thrifts and credit unions comes in an increasingly troubled market for subprime mortgage loans. Home-mortgage delinquencies and foreclosures are spiking, especially for people who took out subprime mortgages – higher-interest loans for those with poor credit records or low incomes who are considered higher risk – during the housing boom that waned in the second half of 2005.

Adjustable-rate mortgages are especially prevalent in the subprime market. They are considered higher-risk loans because they typically draw borrowers in with an initial low, or “teaser” interest rate, which can rise markedly over time. The proposed guidelines direct banks to base their lending decisions on borrowers’ ability to repay home loans at the full final rate.