OCC Rescinds Guidance, Issues ‘Core Principles’ on Higher-LTV Loan Programs

Acknowledging banks’ innovative efforts to meet the credit needs of residents in distressed communities, the OCC today rescinded 2017 guidance for banks seeking to develop programs to offer home loans with loan-to-value ratios of over 90 percent, known as “higher-LTV” loans. “The OCC understands that banks have engaged in responsible, innovative lending strategies that are different from that bulletin’s specific program parameters while being consistent with its goals,” the agency said.

Instead, the OCC issued a set of “core lending principles” designed to provide more flexibility to banks’ higher-LTV programs. These principles emphasize safety and soundness; consumer protections and compliance; effective monitoring, tracking and risk management; sound underwriting policies and practices; and consistency with the bank’s standards for review and approval of exceptions.

The agency added that banks’ policies and processes should typically include: safe and sound underwriting; standards for reviewing and approving higher-LTV loans; portfolio limits for the aggregate amount of these loans; loan amounts and repayment terms that are prudent, fair and compliant with ability-to-repay requirements; appropriate risk management and oversight. They should also include compliant and transparent consumer disclosures that “describe the potential financial impacts on a consumer as well as the marketability of a property securing a higher-LTV loan where the value of the property is and could remain less than the loan amount,” the OCC said. For more information, contact ABA’s Krista Shonk.