OCC Issues Predatory Guidelines

The Office of the Comptroller of the Currency issued Wednesday residential real estate lending guidelines as an additional step to protect against national banks and their subsidiaries from becoming involved in predatory, abusive, unfair, or deceptive residential mortgage lending practices, according to a press release.

The guidelines take effect 60 days after their publication in the Federal Register.

“The guidelines focus on the substance of a bank’s activities and practices, not on the creation of another set of bank policies,” said acting U.S. Comptroller Julie Williams in the announcement.

The new standards incorporate key provisions and central principles of the February 2003 advisory letters, in which the OCC alerted federal banks to practices that could be considered predatory or abusive and advised on measures to avoid such practices. The advisories addressed banks’ mortgage origination activity, as well as purchases of loans and use of third-party brokers. The banks are expected to implement anti-predatory lending standards consistent with and appropriate to the size and complexity of the bank and the nature and size of its lending activities, the report said.

Last January, the OCC added a rule that prohibited national banks from basing a loan decision mainly on the foreclosure or liquidation valuation of a property, without considering the borrower’s ability to repay the loan. That same rulemaking included provisions prohibiting banks from engaging in unfair or deceptive practices under the Federal Trade Commission Act.

The new guidelines describe particular practices that are inconsistent with sound mortgage lending practices and may be conducive to abusive lending, depending on the circumstances, and which, accordingly, warrant a heightened degree of care by bankers. The guidelines consist of three parts: Part I provides an introduction and explains their scope and application; Part II sets forth general standards for residential mortgage lending practices; and Part III details the implementation of those standards.

“The OCC is committed to ensuring that abusive lending practices do not gain a foothold in the national banking system,” Williams added.

The OCC, which enforced rules prohibiting states from regulating nationally chartered banks with state-passed consumer protection laws after stating that abusive lending is virtually nonexistent in federal banks, has had heavy opposition from several groups, including the New York attorney general and ACORN, or the Association of Community Organizations for Reform Now.

These standards currently include, among others, operational and managerial standards for insured depository institutions that relate to internal controls, information systems, and audit systems; loan documentation; credit underwriting; interest rate exposure; and asset growth.

If the OCC believes a bank’s practices fail to meet the standards in the guidelines, the bank may be required to submit a corrective plan. If there is failure to submit the plan or to comply with it, the OCC may issue a cease and desist order against the bank.