Best Practices from the FDIC'S Forum on Mortgage Lending for Low- and Moderate-Income Households
FIL-88-2008 September 4, 2008
The FDIC is issuing the attached document to highlight best practices that were discussed at the FDIC's July 8, 2008, Forum on Mortgage Lending for Low- and Moderate-Income (LMI) Households. The purpose of the forum was to explore a framework for LMI mortgage lending in the future, in light of current problems in the mortgage market. The forum examined ways to encourage profitable, responsible and sustainable mortgage lending to lower-income households and strategies to rejuvenate the secondary market for these loans.
The best practices listed below and in the attached
document are not intended as supervisory guidance, but
are being provided to banks for informational purposes as
a summary of issues discussed at the forum. Banks are
encouraged to review and consider the best practices in
the context of their LMI mortgage lending programs.
Back-to-Basics Underwriting - Basic, traditionally
underwritten, 30-year fixed-rate mortgages are the most
suitable mortgages for most LMI borrowers.
Incentives/Compensation - Ensuring that all parties to
mortgage transactions have a long-term stake in the
outcome of the transactions will improve the quality of LMI
Transparency and Due Diligence - Improved transparency
throughout the mortgage process is critical to reviving the
secondary market for LMI mortgages.
Expanding Existing Products and Innovations - A variety
of existing and proposed products and processes may
increase availability of LMI mortgage credit, including
extending amortization schedules, expanding alternative
underwriting processes for consumers with limited credit
history, and creating innovative insurance products to
address temporary income disruptions, among other
Public/Private Partnerships - Partnerships with community
organizations, nonprofit corporations, banks, borrowers,
local government, and others facilitate credit
enhancements and home ownership counseling that make
responsible LMI mortgage lending possible.
FDIC-Insured Institutions (Commercial and Savings)