Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
National Credit Union Administration
Office of the Comptroller of the Currency
FOR IMMEDIATE RELEASE
January 31, 2012
Agencies Issue Guidance on Junior Lien Loan Loss Allowances
Four federal financial regulatory agencies on Tuesday issued supervisory guidance on allowance for loan and lease losses (ALLL) estimation practices associated with loans and lines of credit secured by junior liens on one- to four-family residential properties.
The agencies issued the guidance to reiterate policy and to remind regulated financial institutions to monitor all credit quality indicators relevant to credit portfolios, including junior liens. Examples of junior liens include second mortgages and home equity lines of credit taken out by mortgage borrowers.
The Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency reiterate key concepts included in generally accepted accounting principles and existing ALLL supervisory guidance related to the ALLL and loss estimation practices. Regulators also remind institutions to follow appropriate risk-management principles in managing junior lien loans and lines of credit.