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OCC Provides Guidance on Residential Mortgage Lending in Distressed Communities

The Office of the Comptroller of the Currency ("OCC") published risk management guidance for banks and federal savings associations concerning high loan-to-value ("LTV") lending programs in communities that are targeted for revitalization by the federal or local government. The guidance applies to those lending institutions that establish programs for originating owner-occupied residential mortgage loans with LTV ratios that exceed 100% at origination.

The OCC recognized that prospective property buyers in distressed communities may have a difficult time obtaining adequate financing. Some of the difficulty is presented by supervisory loan-to-value ("SLTV") limits, which often require credit enhancements for certain loans that exceed a 90% LTV threshold. Currently, banks may avail themselves of existing exceptions to SLTV limits for residential loans, but these exceptions apply only to loans with LTV ratios of less than 100%.

The bulletin provides guidance on the circumstances under which banks may establish these programs including compliance requirements and mandated policies and procedures. In addition, the OCC provided supervisory considerations for banks that establish programs for higher-LTV loans. Banks may be entitled to receive Community Reinvestment Act consideration, depending on the specific features of a given program.

Acting Comptroller of the Currency Keith A. Noreika commented on the potential impact of the programs:

"Banks and thrifts play a critical role in keeping communities vibrant and helping struggling communities recover. Higher-LTV lending programs in communities targeted for revitalization can promote more healthy communities in a manner consistent with safe and sound lending practices."

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