OFIS Issues Best Practices for Subprime Mortgage Lending

August 8, 2007 
Contact: OFIS (toll-free) 1-877-999-6442 
Media/Press calls:  Kathy Fagan - 517-335-1700

Guidance will provide underwriting standards for adjustable rate mortgage products

The Michigan Office of Financial and Insurance Services (OFIS) has issued regulatory best practices covering underwriting standards, management practices, and consumer protection provisions that mortgage originators should follow when marketing and selling certain adjustable-rate mortgage (ARM) products to subprime borrowers, Commissioner Linda A. Watters announced today.

The statement was developed by the Conference of State Bank Supervisors (CSBS), the American Association of Residential Mortgage Regulators (AARMR), and the National Association of Consumer Credit Administrators (NACCA) in response to the federal financial regulatory agencies’ Statement on Subprime Mortgage Lending that was released on June 29.  CSBS, AARMR, and NACCA developed the statement to apply to lenders not regulated by the federal financial regulatory agencies.

“This statement addresses the concerns we have identified in the sub-prime mortgage markets,” Watters said. “We believe a coordinated effort among federal and state regulatory agencies is necessary to provide consistent and effective policy and overall supervision of the mortgage industry.” 

OFIS has regulated the mortgage industry since 1981. In that time, the number of mortgage companies in Michigan has grown from zero to approximately 3,200.

The CSBS/AARMR/NACCA guidance substantially mirrors the federal interagency statement agreed upon by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the National Credit Union Administration, and supported by the FFIEC’s State Liaison Committee. 

However, the state mortgage regulators modified the statement to address issues particular to non-depository mortgage lenders and brokers who originate loans but do not hold them in portfolio. These lenders are generally licensed and regulated by the states.

In conjunction with the 2006 Interagency Guidance on Nontraditional Mortgage Product Risks, the statement offers sound underwriting and consumer protection principles that institutions and all residential mortgage providers should consider when making residential mortgage loans.

Beyond the Statement on Subprime Mortgage Lending, state regulators also plan to issue Examination Guidance for state supervisors to use in evaluating state-licensed mortgage lenders’ compliance with the best practices on lending to subprime borrowers.

The regulatory guidance can be found (here) on the OFIS web site at www.michigan.gov/difs under “What’s New.”

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CSBS Information Contacts:
Michael Stevens, mstevens@csbs.org, CSBS Senior Vice President, Regulatory Policy, (202) 728-5701
Catherine Woody, cwoody@csbs.org, CSBS Assistant Vice President, Policy Analyst, (202) 728-5733

AARMR Information Contacts:
David Saunders, dsaunders@aarmr.org, AARMR Executive Director, (202) 521-3999
George Kinsel, ghkinsel@dllr.state.md.us, AARMR President, (410) 230-6086

NACCA Information Contact:
Theresa L. Brady, tbrady@dbcf.state.ms.us, NACCA President, (601) 359-1031