Speaking before the 2016 National Interagency Community Reinvestment Conference in Los Angeles this week, Comptroller of the Currency Thomas Curry announced that the OCC is soliciting comment for a new collection of information titled “Draft Bulletin: Risk Management Guidance for Higher Loan-to-Value Lending in Communities Targeted for Revitalization” in accordance with the Paperwork Reduction Act of 1995.
According to the OCC, the agency supports efforts by national banks and federal savings associations to assist in the revitalization, stabilization, or redevelopment or distressed communities where foreclosure or blight has been prevalent through prudent mortgage lending, since the banks and others have expressed concern that distressed property values in distressed communities is inhibiting mortgage lending in these areas.
One way banks can support revitalization in distressed communities is through offering mortgage products to purchase, or by purchasing and rehabilitating themselves, single-family residential properties where the amount of the loan may exceed supervisory loan-to-value (SLTV) limits. The OCC published a draft bulletin to provide guidance for managing risks associated with originating such loans.
“Generally speaking, banks should not make single-family home mortgage loans that exceed 90 percent of the property’s value, unless the loan has appropriate credit support, such as mortgage insurance, readily marketable collateral, or other acceptable collateral,” Curry said. “The interagency guidelines also establish that institutions may make exceptions to this supervisory LTV limit on a case-by-case basis, taking into account certain other factors. As set out in the draft bulletin, we believe that engaging in higher LTV lending on a programmatic basis also can be consistent with safe and sound lending while having a positive impact in stabilizing and revitalizing communities.”
Curry said through the OCC was prompted to how to clarify existing guidance in an effort to address perceived barriers to lending, based on a meeting with stakeholders in Detroit, one of the hardest hit areas by foreclosures and blight. He said he found that ongoing dialogue between interested parties was the best way to create ideas for improving economic opportunities.
“As Comptroller, in addition to meeting with bankers on a regular basis, I meet with community organizations, consumer advocates, and public officials to listen to their concerns and discuss ways to improve financial services and promote community development,” Curry said. “Senior OCC staff, who also attend these meetings, have told me it is very helpful to hear these perspectives.”
Curry also encouraged banks to meet with stakeholders in their communities in order to determine if the financial products they offer are the right fit for the communities they serve or to determine what tweaks need to be made in order to make their financial products more effective.
“Periodic meetings with key local stakeholders can also help pinpoint new business opportunities, identify potential partnerships with local community organizations and public agencies, and help a bank formulate its business strategy for meeting its Community Reinvestment Act (CRA) obligations,” Curry said.
The CRA was first enacted by Congress in 1977 and revised in both 1995 and 2005. The purpose of the CRA is to "encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations," according to the U.S. Federal Reserve Board web site.
Click here to read the full text of Curry’s remarks.