WASHINGTON - Comptroller of the Currency
John C. Dugan today released the following statement after the release of final
interagency guidance on non-traditional mortgages.
Over the past year, the Office of the
Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance
Corporation, National Credit Union Administration, and Office of Thrift
Supervision have worked together to craft guidance on non-traditional mortgages
aimed at ensuring these products are offered in a safe and sound manner and in
a way that clearly discloses their risks and benefits to consumers.
The final guidance considered each of the comments
received from consumers, lenders, community groups, and other interested
parties. Its release today will
advance consumer protection and enhance the safety and soundness of the
nation’s financial institutions.
The marketing and use of nontraditional
mortgage products -- particularly, interest-only and
payment-option adjustable-rate mortgages --
have expanded rapidly to a wider spectrum of borrowers who may not otherwise
qualify for more traditional mortgages of similar size. These nontraditional loans
carry substantial risks, most notably associated with negative
amortization and potential payment shock that are not always adequately
disclosed or understood by consumers. Moreover, lenders are
increasingly combining these loans with other practices, such as simultaneous
second-lien mortgages and reduced documentation that compound the
risk to consumers and lenders.
Through
the combined efforts of the OCC and other federal financial regulators, we
intend this guidance to lead to several improvements. First, consumers should have the information
they need to make informed decisions about these loans. Second, lenders who originate these types of
loans should follow sound underwriting practices that credibly consider the
borrower’s repayment capacity and allow lenders to mitigate associated risks.
Through
innovation and competition, the American financial system has helped record
numbers of Americans achieve the dream of owning their own
homes. We expect the guidance released today will help to ensure this
process continues on a sound footing for borrowers and lenders alike.
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The
Office of the Comptroller of the Currency was created by Congress to charter
national banks, to oversee a nationwide system of banking institutions, and to
assure that national banks are safe and sound, competitive and profitable, and
capable of serving the banking needs of their customers in the best possible
manner. OCC press releases and other
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