OCC 2003-9
OCC BULLETIN	

Subject:      Mortgage Banking
Description:  Interagency Advisory on Mortgage Banking

Date:         February 25, 2003 

TO:  Chief Executive Officers of All National Banks, Department and 
     Division Heads, and All Examining Personnel

The attached “Interagency Advisory on Mortgage Banking” was issued 
jointly by the Comptroller of the Currency, The Board of Governors 
of the Federal Reserve System, the Federal Deposit Insurance 
Corporation, and the Office of Thrift Supervision on February 24, 
2003.

The purpose of this advisory is to highlight concerns and provide 
guidance regarding mortgage-banking activities, primarily in the 
valuation and hedging of mortgage-servicing assets.  While the 
number of banks with significant exposure to mortgage-banking assets 
is limited, mortgage banking is a significant and growing business 
line for many institutions.  Mortgage production volume increased 
significantly over the past two years, as mortgage rates fell to 
record lows and refinancing activity reached an all time high.  
Many borrowers have been attracted to new lending products by 
innovative, low-cost lending programs, widespread use of automated 
underwriting, and increased competition among banks, thrifts, and 
other financial institutions.  This high volume of mortgage 
activity exposes banks to a number of risks.  These risks are 
discussed in the attached statement.  

When properly managed, mortgage-banking activities can contribute 
to the strength of any financial institution.  Institutions with 
significant exposures to mortgage assets should expect greater 
scrutiny of their mortgage activities during examinations.  The OCC 
may also require additional capital for banks that fail to exercise 
the sound practices set forth in this advisory in their risk 
management programs.

For further guidance on mortgage banking issues contact Thomas Rees, 
Office of the Chief Accountant at (202) 874-5411, Greg Ramsey, 
Office of the Chief Accountant at (202) 927-4582, or Greg Coleman, 
Treasury and Market Risk at (202) 874-2777.



_______________________________	    ______________________________
Kathryn E. Dick	                          Zane D. Blackburn
Deputy Comptroller for                    Chief Accountant
Risk Evaluation	  
	

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