Magazine article American Banker

Calif. Mulls How to Enforce OCC Loan Guidance

Magazine article American Banker

Calif. Mulls How to Enforce OCC Loan Guidance

Article excerpt

With foreclosure rates rising in California, the chairman of the state Senate Banking, Finance, and Insurance Committee has begun work on what could result in tighter restrictions on certain mortgage-lending practices.

On Thursday, a day after a hearing on nontraditional mortgages, Sen. Michael Machado, D-Linden, said the state is trying to determine how to apply the Office of the Comptroller of the Currency's guidance on nontraditional loan products to state-regulated mortgage originators and brokers.

The hearing raised several questions, including how the California Department of Corporations can apply the guidelines, he said.

"We are working with them to see if they do it as guidance, what teeth can they have or can they bring to bear. Do they need to do it through the regulatory process -- and, if so, what the timeline is -- or should we do it statutorily?" Sen. Machado said.

The committee expects to issue a summary report on the hearing this month.

Issued in October, the OCC guidance directs financial institutions to disclose the risks of nontraditional mortgages to consumers who are shopping for loans, to be prudent in assessing the creditworthiness of applicants for nontraditional mortgages, and to ensure risk-management systems provide early warnings of potential or increased risks.

The OCC is encouraging states to take steps to apply the guidance to mortgage originators not regulated by the federal government. Twenty-six states and the District of Columbia have adopted guidance similar to the OCC's, according to the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. California, New York, and Illinois are among the largest states that have yet to adopt guidance, according to the two organizations.

Sen. Machado said that state regulators are willing to enforce the provisions of the guidance, and that he will be studying how to do that in the coming weeks. …

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