OCC ISSUES PREDATORY LENDING GUIDELINES
The Office of the Comptroller of the Currency has issued the “OCC Guidelines Establishing Standards for National Banks’ Residential Mortgage Lending Practices” as Appendix C to 12 C.F.R. Part 30. In line with the recent regulatory focus on unfair and deceptive acts and practices, the OCC’s purpose in issuing the Guidelines is to help national banks avoid becoming involved in predatory, abusive, unfair or deceptive residential mortgage lending practices.
The Guidelines incorporate and implement the principles of two 2003 advisory letters regarding predatory or abusive practices in mortgage origination practices, the purchasing of loans and the use of third-party originators. The new standards focus on actual activities and practices instead of policy, as outlined below:
(i) Particular practices inconsistent with sound residential mortgage lending practices, such as:
• equity stripping and fee packing
• loan flipping
• refinancing of special subsidized mortgages
• encouraging default on existing loans in order to refinance
(ii) Terms and practices that may be conducive to predatory, abusive, unfair or deceptive lending practices and thus warrant a heightened degree of care by lenders, such as:
• financing single premium insurance
• negative amortization
• mandatory arbitration
(iii) Steps that lenders should take to mitigate risks associated with the purchase of residential mortgage loans and the use of mortgage brokers to originate such loans, which include methods and criteria to:
• retain appropriate controls over mortgage origination
• take corrective action
• enter and continue relationships with intermediaries and originators
If the OCC determines, by examination or otherwise, that a national bank has failed to meet a standard prescribed by regulation or guidelines, including the new Guidelines, the OCC may require that the bank submit a compliance plan to correct the deficiencies. If a failure to comply with the Guidelines, including a failure to submit a plan, is an unfair or deceptive practice, the failure may also be actionable under Section 5 of the Federal Trade Commission Act.
The Guidelines are effective 60 days after their publication in the Federal Register.
Jeff Langer and Deborah Freye