Putting RESPA to Rest, Once and for All

Putting RESPA to Rest, Once and for All

May 31, 2004

Banking Agencies Issue Expanded Guidelines on Sub-Prime LendingMortgagePress.comFederal Deposit Insurance Corporation, FDIC, Sub-Prime Lending
The Federal Deposit Insurance Corporation, the Board of
Governors of the Federal Reserve System, the Office of the
Comptroller of the Currency and the Office of Thrift Supervision
have jointly issued the "Expanded Guidance for Sub-Prime Lending
Programs." The guidance, which supplements previous sub-prime
lending guidance issued on Mar. 1 of 1999, intends to strengthen
the examination and supervision of institutions with significant
sub-prime lending programs.
The guidance applies to institutions with sub-prime lending
programs that equal or exceed 25 percent of an institution's Tier 1
regulatory capital. For purposes of this guidance, "sub-prime
lending" refers to programs that target borrowers with weakened
credit histories, typically characterized by payment delinquencies,
previous charge-offs, judgements or bankruptcies. These programs
may also target borrowers with questionable repayment capacity
evidenced by low credit scores or high debt-burden ratios.
Highlights of the expanded guidance include:
++Specifying borrower characteristics that may indicate an
institution is targeting the sub-prime lending market;
++Clarifying the standards to use when evaluating the adequacy
of the Allowance for Loan and Lease Losses (ALLL);
++Establishing a case-by-case framework for determining the
level of capital necessary to support sub-prime lending
++Discussing examination procedures for assessing the quality of
sub-prime loan portfolios;
++Identifying potentially predatory or abusive lending practices
subject to the criticism of safety and soundness examiners; and
++Specifying documentation requirements for re-aging, renewing
or extending delinquent sub-prime accounts.
The agencies issuing the guidance recognize that responsible
sub-prime lending may expand credit access for consumers and offer
institutions the opportunity to earn attractive returns. However,
institutions are expected to recognize both the elevated risk
levels imposed by participation in sub-prime lending programs and
the enhanced risk management standards needed to successfully
engage in sub-prime lending.
For more information, contact FDIC Examination Specialist Serena
Owens at (202) 898-8996 or visit www.fdic.gov.