In a move reminiscent of the 2008’s increased popularity of subprime loans, the Office of the Comptroller of the Currency issued a bulletin Monday to national banks and federal associations that outlines practices to help manage programs that originate loans with a loan-to-value ratio over 100 percent. The idea behind the potential programs is to help stimulate depressed housing values in distressed communities.
“Banks and thrifts play a critical role in keeping communities vibrant and helping struggling communities recover,” said Acting Comptroller of the Currency Keith A. Noreika. “Higher-LTV lending programs in communities targeted for revitalization can promote more healthy communities in a manner consistent with safe and sound lending practices.”
The bulletin goes on to outline guidelines as to criteria for the loan that is to be originated. According to the OCC, the loan should be a permanent first-lien mortgage for the purchase, or purchase and rehabilitation of, an owner-occupied residential property. Further, the loan should have an original loan balance of less than $200,000 and “readily marketable collateral” if there is no mortgage insurance. It does make a point to exclude home equity loans, lines of credit, and refinanced loans.
If banks want to follow the OCC’s guidelines and begin a program as outlined, they should notify the OCC at least 30 days before it intendeds on starting to originate loans. The OCC will review the lender’s proposal and assign an examiner to evaluate whether or not the program abides with safe lending practices. Once the program is underway, the OCC will continue to monitor the bank to ensure that the programs are successfully managed.
And while sometimes a little risk is required, there are certain industry veterans that would avoid throwing caution to the wind so quickly. Ed Delgado, President and CEO of the Five Star Institute, is one of those veterans.
“It is undoubtedly important to stimulate housing markets—especially in depressed areas—but lenders need to exercise caution, especially with high-risk loans of this nature,” he said. “left unchecked, running LTVs north of 100% can be a destabilizing force for both consumers and communities."