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Financial Institution Letters


February 25, 2003

TO: CHIEF EXECUTIVE OFFICER (also of interest to Chief Financial Officer)
SUBJECT: Interagency Advisory on Mortgage Banking Activities
Summary: The federal bank and thrift regulatory agencies have issued an advisory letter highlighting the agencies' concerns with certain mortgage banking activities. Banking organizations are reminded of the importance of operating their mortgage banking operations within the confines of an effective risk-management environment.

The Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Office of Thrift Supervision have jointly issued the attached "Interagency Advisory on Mortgage Banking." This advisory alerts bankers and examiners to the supervisory concerns that have been identified during reviews of mortgage banking operations and encourages banks to establish robust risk-management controls governing the valuation, accounting and hedging of mortgage-servicing assets.

Banks that are actively involved in mortgage banking activities are expected to value their mortgage-servicing assets using reasonable and supportable market-based assumptions. Furthermore, the board of directors should establish limits on investments in mortgage-servicing assets and evaluate and monitor such investment concentrations on a regular basis. Banks that do not incorporate acceptable controls over their mortgage banking operations may be subject to higher capital requirements.

For further information about this advisory, please contact Jason C. Cave, Chief, Policy Section, in the Division of Supervision and Consumer Protection's Capital Markets Branch on (202) 898-3548.

For your reference, FDIC Financial Institution Letters may be accessed from the FDIC's Web site at To learn how to automatically receive FDIC Financial Institution Letters through e-mail, please visit

Michael J. Zamorski

Attachment: Interagency Advisory On Mortgage Banking

Distribution: FDIC-Supervised Banks (Commercial and Savings)

NOTE: Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 801 17th Street, NW, Room 100, Washington, DC 20434 (1-877-275-3342, option 5, or (703) 562-2200).

Last Updated 02/25/2003

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