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FDIC Federal Register Citations
Sent: Wednesday, January 11, 2006 6:36 PM
Ladies and Gentlemen:
Manufacturers Bank is pleased to take this opportunity to comment on the proposed Interagency Guidance on Nontraditional Mortgage Products. We are an approximately $1.5 billion California state bank with limited consumer products. In particular, primarily due to regulatory concerns, we do not originate loans to purchase one- to four-family dwellings. However, we do offer revolving home equity lines of credit (HELOCs), as well as non-purchase money second trust deed loans for consumer purposes.
Because of the scope of our lending activities, we offer only one comment concerning the proposed Guidance. We believe that the Guidance should define somewhat more clearly the products to which it does and does not apply. The Guidance utilizes the terminology "residential mortgage loan products" and "nontraditional mortgage loans," but those terms are not necessarily self-explanatory. In particular, it is not entirely clear whether the proposed Guidance applies to non-purchase money revolving products such as HELOCs. HELOCs are mentioned explicitly only in connection with the practice of simultaneously providing first- and second-lien loans. Although the drafters may have assumed that HELOCs are not included within the scope of the term "mortgage loan" and, therefore, are not otherwise subject to the Guidance, that conclusion is not self-evident. A HELOC is a consumer credit obligation secured by a mortgage or trust deed on the consumer's residence. Moreover, many HELOC programs have at least some of the characteristics discussed in the Guidance, such as introductory interest rates, interest-only payments for at least a portion of the overall term of the line and amortization structures that result in a "balloon" payment at maturity. Therefore, in the abstract, a reader might conclude that the Guidance applies to HELOCs in the same manner as closed end first-lien mortgages.
Nonetheless, we do not believe it is the Agencies' intent for the proposed Guidance to apply to HELOCs (except insofar as it specifically discusses them). HELOCs have been in fairly common use (at least in California) for at least 30 years, and are relatively well understood from a risk management standpoint. Moreover, the special disclosures and other requirements applicable to HELOCs in Regulation Z, such as Section 5b (12 C.F.R. §226.5b), already ensure that consumers are made aware of the terms of these products. Thus, HELOCs should not require the additional risk management and consumer protection attention the Agencies believe to be warranted for nontraditional mortgage loans, as set forth in the Guidance.
To avoid possible confusion by bank management, attorneys, auditors and field examiners in this regard, the Guidance (or, failing that, the supplemental materials that accompany the final issuance of the Guidance) should state that HELOCs are not deemed to be nontraditional mortgage loans for purposes of the Guidance, except to the extent it specifically discusses them.
Steven L. Strange
|Last Updated 01/12/2006||Regs@fdic.gov|