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OCC BULLETIN 1999-38
To: Chief Executive Officers of All National Banks, Department and Division Heads, and All Examining Personnel

Description: Treatment of High LTV Residential Real Estate Loans

The guidance attached to this bulletin continues to apply to federal savings associations.

Purpose

On October 8, 1999, the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision jointly issued the attached "Interagency Guidance on High LTV (Loan-to-Value) Residential Real Estate Lending." The guidance discusses the credit risks associated with high LTV residential real estate lending and reminds national banks that the 1992 Interagency Guidelines for Real Estate Lending Policies apply to these transactions.

A high LTV residential real estate loan is any loan, line of credit, or combination of credits secured by liens on or interests in owner-occupied one- to four-family residential property that equals or exceeds 90 percent of the real estate's appraised value, unless the loan has appropriate credit support. Appropriate credit support may include mortgage insurance, readily marketable collateral, or other acceptable collateral that reduces the LTV ratio below 90 percent. The guidance provides examples on how to calculate an LTV ratio when multiple loans or more than one lender is involved.

The guidance reminds national banks that the aggregate limit for all loans in excess of supervisory LTV limits is 100 percent of total capital, and clarifies that high LTV residential real estate loans should be included in those calculations. If a national bank exceeds this limit, the OCC will determine if it has a supervisory concern and take action accordingly. In making such a determination, the OCC will consider, among other things, the institution's capital level and overall risk profile, as well as the adequacy of its controls and operations. Supervisory action may include a request to sell high LTV loans, raise additional capital, or submit a plan to achieve compliance with the capital limitation.

The guidance also responds to questions from the industry regarding the "abundance of caution" and "loans sold promptly, without recourse, to a financially responsible third party" exclusions to the 1992 guidelines.

The guidance is intended to remind national banks of their obligations to effectively manage the risk in their high LTV portfolios and to comply with applicable fair lending and consumer protection laws and regulations. It is not intended to restrict access to mortgage credit for affordable housing for low-to-moderate income borrowers, or to restrict financing of well-managed community development and rehabilitation programs. High LTV loans may be used to help first-time homebuyers by financing closing costs or rehabilitation costs into their mortgage. Additionally, prudently extended high LTV loans can serve a useful purpose in helping financially burdened borrowers consolidate and manage their debts. Further guidance on affordable mortgage lending can be found in Advisory Letter 97–7, dated July 23,1997.

For further information, contact Tom Watson, national bank examiner, Credit Risk Division, at (202) 649-6670.

David D. Gibbons
Deputy Comptroller for Credit Risk

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