OCC Chief Counsel Julie L.
Williams Calls For
Greater Cooperation to Combat
Predatory Lending
CLEVELAND
Julie L. Williams, Chief Counsel and First Senior Deputy Comptroller for the
Office of the Comptroller of the Currency, urged community groups, financial
institutions and federal and state regulators to form new partnerships to
provide housing finance to underserved communities and combat abusive and
predatory lending practices.
Ms.
Williams said a number of factors, including the growth of secondary markets
and the increasing importance of nonbank mortgage brokers, have led to more
competition and better rates and services for prime mortgage customers in a
speech before the annual meeting of the Cleveland Neighborhood Housing Services
(NHS). However, subprime borrowers have
not shared those benefits.
Indeed,
some observers have described a dual mortgage delivery system, where some
individualsmostly poorer, older, or less sophisticated, and disproportionately
minorityoften pay more for mortgages than their actual credit profile would
warrant, do not so much shop for loans as they are sold loans, and who are
therefore inordinately vulnerable to a range of abusive practices, Ms.
Williams stated.
Ms.
Williams noted that there is nothing inherently more abusive about
broker-originated loans than any other kind.
But,
we need to recognize that there are a combination of ingredients at work here
that can make for a toxic brew: subprime borrowers who may have limited credit
options available and less sophistication about how to pursue these options,
and a dominant distribution network where mortgage originators are compensated,
up front, through a share of fees charged the borrower, and where those
originators have little or no expectation of any ongoing relationship with the
borrower, such as by holding or servicing the loan, Ms. Williams said. Recent studies do indicate that brokers
have competing interests in getting loans funded and on collecting fees for
their services, on the one hand, and in matching borrowers with the best
available mortgage, with the best prospect for long term performance, on the
other.
Ms.
Williams pointed out that community organizations all across the country are
stepping up to meet the challenge of eradicating predatory and abusive
lending. For example, under the
NeighborWorks Campaign for Home Ownership, thousands of homeowners are
receiving help in managing their property and their finances, making it
significantly less likely that theyll wind up as victims of predatory
lending.
Ms.
Williams told attendees that more needs to be done and urged bankers to play
their part.
On
the first point, we expect national bankers to be following the formal guidance
the OCC issued last year on the steps they should take and the factors they
should consider to avoid becoming involved in abusive, predatory, unfair or
deceptive lending practices, Ms. Williams said. With respect to purchase and brokered loans in particular, we
emphasized that banks should have criteria for entering into and continuing
relationships with intermediaries and originators, including due diligence
requirements, and standards related to total compensation, including
compensation of intermediaries, such as maximum rates, points and other
charges.
Ms.
Williams asked attendees to help in monitoring the behavior of mortgage
originators and exposing those few who are responsible for soiling the
reputation of many.
You
who work with victims of abusive lending know who these lenders are, Ms.
Williams noted. And no one is in a
better position than you to get that information out, to the state and federal
agencies that regulate mortgage brokers and lenders, to mortgage industry data
exchanges, and to regulated financial institutions, which need that information
to ensure that they dont become unwitting accomplices of the abusive lenders
by purchasing loans they have originated.
Ms.
Williams suggested that community organizations reach out, like the brokers do,
to identify prospective borrowers, giving them a realistic reading of their
credit risk profile, and helping locate the best available loan for them.
This
requires community organizations to have accurate, dependable information on
prospective borrowers, access to the automated tools used to evaluate their
risk profile, and loan pricing information similar to the information that
mortgage brokers receive, Ms. Williams said.
It means competing effectively to reach potential borrowers and get
them the best deal availablewhich may be a subprime loan that reflects subprime
rates, but which will not be a predatory loan.
Ms. Williams
pointed out that some community organizations have outsourced the origination
and servicing operations of their loan programs to third parties saving
overhead expenses while others have chosen to create in-house state-of-the art
servicing operations of their own.
So if I leave you
with any one message, let it be a message of partnership, Ms. Williams concluded. Community organizations, bankers, and bank
regulators, dont always see eye-to-eye.
But when the task is to restore and reinvigorate Americas communities,
we are shoulder-to-shoulder.
# # #
The OCC charters, regulates and examines approximately
2,000 national banks and 51 federal branches of foreign banks in the U.S.,
accounting for more than 56 percent of the nations banking assets. Its mission
is to ensure a safe and sound and competitive national banking system that
supports the citizens, communities and economy of the United States.