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Subprime Mortgage Lending Interagency Proposed Statement on Subprime Mortgage Lending

Lending / Investments
March 9, 2007
Summary: The federal financial regulatory agencies are seeking comment on the attached proposed Statement on Subprime Mortgage Lending (Subprime Statement) . The Subprime Statement addresses the risks and emerging issues relating to subprime mortgage lending practices, most notably certain adjustable-rate mortgage (ARM) lending products. Comments are due by May 7, 2007.

Highlights:

The proposed Subprime Statement :

  • Focuses on loans that involve repayment terms that exceed the borrower's ability to service the debt without refinancing or selling the property.
  • Addresses concerns that subprime borrowers may not fully understand the risks and consequences of obtaining these products, and that the products may pose an elevated credit risk to financial institutions.
  • Underscores that prudent underwriting standards recognize the potential effect of payment shock in evaluating borrowers' ability to service debt.
  • Emphasizes that communications with consumers should provide clear and balanced information about the relative benefits and risks of the products.
  • Directs both risk management and compliance examiners to carefully scrutinize institutions' processes, policies and procedures to ensure that their practices adequately address the risk of these products.

The FDIC encourages institutions that offer subprime mortgage products to review and comment on the attached Subprime Statement .

Distribution:
FDIC-Supervised Banks (Commercial and Savings)

Suggested Routing:
Chief Executive Officer
Chief Loan Officer
Chief Compliance Officer
Chief Information Technology Officer

Note:
FDIC financial institution letters (FILs) may be accessed from the FDIC's Web site at www.fdic.gov/news/financial-institution-letters/2007/index.html .

To receive FILs electronically, please visit http://www.fdic.gov/about/subscriptions/fil.html .

Paper copies of FDIC financial institution letters may be obtained via the FDIC's Public Information Center (1-877-275-3342 or 703-562-2200).

Additional Related Topics:

  • Real Estate Lending
  • Subprime Lending
  • Nontraditional Mortgage Lending
Attachment(s)
Proposed Statement on Subprime Mortgage Lending

Last Updated: March 9, 2007