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WASHINGTON – America’s Community Bankers want the federal banking regulators to substantially revise or withdraw joint guidance on alternative mortgage products. In its March 27th comment letter to the Fed, ACB stated that it “appreciates the Agencies’ concern that the industry’s underwriting standards at some institutions may have been relaxed at the same time that real estate market, in some areas, are showing signs of cooling. We agree that institutions must use care and prudent practices to originate alternative mortgage products and to manage portfolios containing these products, but we do not believe it is necessary to issue guidance to depository institutions to reiterate these points. If the Agencies, nevertheless, deem it appropriate to issue a final guidance, we believe that several revisions are needed to avoid excessive regulatory burdens and restrictions that would hamper the ability of depository institutions to offer the widest array of products available to serve all of their customers appropriately.” ACB stated it opposes a one-size-fits-all approach to originating and managing alternative mortgage products. “Institutions may have unique and well-managed mortgage operations, which are safe, sound and appropriate. We believe the Agencies should continue to evaluate each institutions individually to identify portfolio risks.” ACB further wrote that it believes “when underwritten appropriately, alternative mortgages do not pose undue risks, either singly or in combination. ACB believes that lenders can protect themselves against market downturns through careful management and sensible underwriting practices. Thus, ACB believes that restrictive standards on the use of these mortgage products are unnecessary for regulated financial institutions.” “.While we support appropriate disclosure to potential borrowers about the terms of these alternative mortgage products, we have concerns about the way the Agencies address disclosure in the Proposed Guidance. We believe that the safety and soundness of regulated institution should be the paramount concern of the Agencies. The Proposed Guidance, however, extends into the notion of requiring lenders to determine the “suitability” of mortgage products for the individual consumer. While it is the lender’s responsibility to provide borrowers with sufficient information for them to clearly understand the loan terms and associated risks, we do not believe it is appropriate or possible for the lender to identify or dictate the best mortgage product for individual consumers. One borrower may place a higher priority on retiring of debt, while another may place a higher priority on current cash flow.” ACB also addressed loan terms and underwriting standards, portfolio and risk management, consumer protection, and various questions posed by the Agencies, in its comment letter. In its comment letter, NAFCU President/CEO Fred Becker stated the association recognizes the importance of the proposed guidance’s discussion of prudent loan terms and underwriting standards, suggestions for appropriate portfolio and risk management practices, and recommendations of best practices for consumer protection. “NAFCU believes credit unions should carefully manage risk exposures when participating in nontraditional lending activities and risk-layering practices and generally supports the proposed guidance,” Becker wrote adding two comments on the proposed guidance: * use of reduced documentation – NAFCU recommends that reduced documentation should be available for well-qualified borrowers. “Especially in cases where the CU offers risk-based pricing where the borrower’s employment history, credit history, etc. are considered, it may be appropriate to rely on stated income in underwriting a nontraditional mortgage loan. NAFCU does not believe, however, that reduced documentation would be appropriate for sub-prime borrowers under any circumstances.” * consideration of future income – since future income cannot be guaranteed, NAFCU offers that loan qualifications should generally be based only on current verifiable income. But in some limited circumstances, NAFCU opines that consideration of future income is appropriate. -

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