[Federal Register Volume 80, Number 247 (Thursday, December 24, 2015)]
[Notices]
[Pages 80458-80461]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-32376]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency


Agency Information Collection Activities; Proposed Information 
Collection; Comment Request; Draft Bulletin: Risk Management Guidance 
for Higher Loan-to-Value Lending in Communities Targeted for 
Revitalization

AGENCY: Office of the Comptroller of the Currency (OCC), Treasury.

ACTION: Notice and request for comment.

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SUMMARY:  The OCC, as part of its continuing effort to reduce paperwork 
and respondent burden, invites the general public and Federal agencies 
to take this opportunity to comment on a new information collection, as 
required by the Paperwork Reduction Act of 1995 (PRA).
    In accordance with the requirements of the PRA, the OCC may not 
conduct or sponsor, and the respondent is not required to respond to, 
an information collection unless it displays a currently valid Office 
of Management and Budget (OMB) control number. The OCC is soliciting 
PRA-related comment concerning a new information collection titled, 
``Draft Bulletin: Risk Management Guidance for Higher Loan-to-Value 
Lending in Communities Targeted for Revitalization'' (draft guidance).

DATES: You should submit written comments by February 22, 2016.

ADDRESSES: Because paper mail in the Washington, DC area and at the OCC 
is subject to delay, commenters are encouraged to submit comments by 
email, if possible. Comments may be sent to: Legislative and Regulatory 
Activities Division, Office of the Comptroller of the Currency, 
Attention: 1557-NEW, 400 7th Street SW., Suite 3E-218, Mail Stop 9W-11, 
Washington, DC 20219. In addition, comments may be sent by fax to (571) 
465-4326 or by electronic mail to [email protected]. You may 
personally inspect and photocopy comments at the OCC, 400 7th Street 
SW., Washington, DC 20219. For security reasons, the OCC requires that 
visitors make an appointment to inspect comments. You may do so by 
calling (202) 649-6700, or for persons who are deaf or hard of hearing, 
TTY, (202) 649-5597. Upon arrival, visitors will be required to present 
valid government-issued photo identification and to submit to security 
screening in order to inspect and photocopy comments.
    All comments received, including attachments and other supporting 
materials, are part of the public record and subject to public 
disclosure. Do not enclose any information in your comment or 
supporting materials that you consider confidential or inappropriate 
for public disclosure.

FOR FURTHER INFORMATION CONTACT: Shaquita Merritt, Clearance Officer, 
(202) 649-5490, or for persons who are deaf or hard of hearing, TTY, 
(202) 649-5597, Legislative and Regulatory Activities Division, Office 
of the Comptroller of the Currency, 400 7th Street SW., Washington, DC 
20219.

SUPPLEMENTARY INFORMATION:
    Title: Draft Bulletin: Risk Management Guidance for Higher Loan-to-
Value Lending in Communities Targeted for Revitalization.
    OMB Control No.: 1557-NEW.
    Type of Review: Regular.
    Abstract: Under the draft guidance, national banks and federal 
savings associations wishing to establish a program for originating 
owner-occupied residential mortgage loans that exceed supervisory loan-
to-value (SLTV) limits in communities targeted for revitalization 
should have policies and procedures approved by their Board of 
Directors (Board) that address the loan portfolio management, 
underwriting, and other relevant considerations for such loans. The 
draft guidance would

[[Page 80459]]

advise that banks also should notify the appropriate OCC supervisory 
office in writing at least 30 days prior to originating residential 
loans pursuant to a Board-approved program or implementing any 
substantive change to a previously submitted program and provide a copy 
of the Board-approved policies and procedures to the OCC supervisory 
office.
    Affected Public: Businesses or other for-profit.
    Burden Estimates:
    Estimated Number of Respondents: 20.
    Estimated Burden per Respondent for the First Year: Drafting 
Policies-200 hours; Documentation-10 hours per quarter (i.e., 40 
hours); Reporting-10 hours.
    Total Estimated Annual Burden: 5,000 hours.
    Frequency of Response: On occasion.
    Comments submitted in response to this notice will be summarized 
and included in the request for OMB approval of the information 
collection. All comments will become a matter of public record. 
Comments are invited on:
    (a) Whether the collection of information is necessary for the 
proper performance of the functions of the OCC, including whether the 
information has practical utility;
    (b) The accuracy of the OCC's estimate of the information 
collection burden;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of the collection on respondents, 
including through the use of automated collection techniques or other 
forms of information technology; and
    (e) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    Draft Guidance: The text of the draft guidance \1\ is as follows:
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    \1\ The OCC plans to issue this guidance in the form of a 
bulletin directed to national banks and federal savings 
associations.
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Draft Bulletin: Risk Management Guidance for Higher Loan-to-Value 
Lending in Communities Targeted for Revitalization

Summary

    The Office of the Comptroller of the Currency (OCC) supports 
efforts by national banks and federal savings associations 
(collectively, banks) to assist in the revitalization, stabilization, 
or redevelopment (referred to in this bulletin individually and 
collectively as revitalization) of distressed communities through 
prudent residential mortgage lending. The OCC recognizes that banks and 
other parties have expressed concern that depressed housing values in 
certain distressed communities in the United States inhibit mortgage 
lending in these communities. One way in which banks can support 
revitalization efforts in distressed communities is by offering 
mortgage products for purchasing, or purchasing and rehabilitating, 
one- to four-unit residential properties where the loan amount may 
exceed supervisory loan-to-value (SLTV) limits. This bulletin provides 
guidance for managing risks associated with originating certain 
residential mortgage loans that exceed SLTV limits.

Note for Community Banks

    This guidance applies to all OCC-supervised banks wishing to 
establish a program for originating owner-occupied residential mortgage 
loans that exceed SLTV limits in communities targeted for 
revitalization.

Highlights

    This bulletin provides guidance regarding the
     Circumstances under which banks may establish programs to 
originate certain owner-occupied residential mortgage loans that exceed 
SLTV limits.
     OCC's supervisory considerations regarding such programs.
    As described in this bulletin, the OCC will actively monitor and 
evaluate the programs established by banks, including the performance 
of owner-occupied residential mortgage loans that exceed the SLTV 
limits. At least annually, the OCC will assess whether the programs are 
contributing to the revitalization of targeted communities and whether 
the banks are adequately controlling the risks associated with such 
higher loan-to-value (LTV) lending.

Background

    Some U.S. communities continue to confront lagging home values. 
Financing difficulties caused by depressed housing markets are 
particularly pronounced in communities that were significantly affected 
by the financial crisis and housing market decline.
    As these communities work to stabilize home ownership and home 
values, the rehabilitation of abandoned or distressed housing stock is 
an important component of broader efforts to strengthen communities. 
Local governments, government-affiliated entities, community-based 
organizations, financial institutions, and others have developed 
creative solutions for some of these challenges. These solutions 
include strategies for acquiring and rehabilitating properties in 
communities targeted for revitalization. Community groups, financial 
institutions, non-profit organizations, and state and local entities, 
including land banks, are working together to develop and implement 
innovative residential mortgage financing to bring needed lending to 
economically distressed areas. The efforts include providing second-
lien loans to finance rehabilitation costs, interest-rate discounts, 
and down payment and closing cost assistance. The Federal Housing 
Administration, Fannie Mae, and Freddie Mac all currently offer 
rehabilitation financing.\2\
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    \2\ Programs include the Federal Housing Administration's 
Limited 203(k) Rehabilitation Mortgage Insurance Program, Fannie Mae 
HomeStyle Renovation, and Freddie Mac Construction Conversion and 
Renovation Mortgages.
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    In addition to participating in these and other third-party 
efforts, banks have expressed a desire to participate in revitalization 
efforts of distressed communities by offering their own loan products. 
The value of the collateral in a distressed community, however, can 
present challenges to banks' residential lending in part because of 
current SLTV limits. Distressed sales, including short sales and 
foreclosures, often negatively affect home values in these communities. 
Further, in communities with minimal sales activity, finding comparable 
property sales becomes challenging when appraisals or evaluations are 
required. Buyers of distressed properties can have particular 
difficulty securing adequate financing to cover the often substantial 
renovation costs required to make the properties habitable.
    The OCC recognizes that supporting long-term community 
revitalization may necessitate responsible innovative lending 
strategies. One way in which banks can support revitalization efforts 
is through prudent lending within established exceptions to the SLTV 
limits for residential loans. Existing regulations and guidelines 
recognize that it may be appropriate, in individual cases, for banks to 
make loans in excess of the SLTV limits, based on support provided by 
other credit factors.\3\ The regulations and guidelines also

[[Page 80460]]

recognize that banks may make prudent underwriting exceptions for 
creditworthy borrowers whose needs do not fit within the banks' general 
lending policies, including SLTV limits, on a loan-by-loan basis under 
certain conditions.\4\ These conditions include that the aggregate 
amount of all loans in excess of SLTV limits should not exceed 100 
percent of total capital, that the boards of directors establish 
standards for reviewing and approving exception loans, and that written 
justification setting forth relevant credit factors accompany all 
approvals of exception loans.\5\ Credit factors for these purposes may 
include the borrower's capacity to adequately service the debt, the 
borrower's overall creditworthiness, and the level of funds invested in 
the property.\6\
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    \3\ For national banks, refer to 12 CFR 34, ``Real Estate 
Lending and Appraisals,'' appendix A to subpart D, ``Interagency 
Guidelines for Real Estate Lending Policies.'' For federal savings 
associations, refer to 12 CFR 160.101, ``Real estate lending 
standards,'' appendix to 12 CFR 160.101, ``Interagency Guidelines 
for Real Estate Lending Policies.''
    \4\ Id.
    \5\ Id.
    \6\ Id.
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    The OCC believes that banks can offer residential mortgage loans in 
communities targeted for revitalization in a manner consistent with 
safe and sound lending practices. As described later in section I of 
this bulletin, such loans may include eligible loans in eligible 
communities originated in accordance with a board-approved program 
(referred to as a program in this bulletin). Important elements of any 
program are the bank's policies and procedures for complying with the 
ability-to-repay standard of Regulation Z \7\ and the bank's separate 
underwriting standards and approval processes for residential mortgage 
loans that exceed SLTV limits.
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    \7\ The Dodd-Frank Wall Street Reform and Consumer Protection 
Act amended the Truth in Lending Act to require creditors to make a 
reasonable, good faith determination of a consumer's ability to 
repay a mortgage loan, absent specified exceptions. Refer to 15 
U.S.C. 1639c. The Consumer Financial Protection Bureau issued a 
final rule amending Regulation Z to implement these ability to repay 
requirements, which became effective January 1, 2014. Refer to 78 FR 
6621, January 30, 2013.
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    Lending under such a program may be in the best interest of the 
bank, individual borrowers, and the community. Additionally, the bank 
may receive Community Reinvestment Act consideration for SLTV exception 
loans depending on the specifics of the program. SLTV exception lending 
is not, however, without risk. The OCC will actively monitor and 
evaluate how a bank's program manages the risks, particularly to the 
bank and its borrowers, and the effect the program has on the community 
targeted by the bank's program. At least annually, the OCC also will 
evaluate the overall impact of programs offered by all banks in 
communities targeted for revitalization.

I. Program Criteria

A. Eligible Loan

    An eligible loan should be a permanent mortgage for the purchase 
of, or purchase and rehabilitation of, an owner-occupied residential 
property located in an eligible community. An eligible loan also should 
have an original loan balance of $200,000 or less and be originated 
under a program developed pursuant to this bulletin.
    The OCC recognizes that eligible loans will have an LTV ratio equal 
to or exceeding 90 percent without mortgage insurance or readily 
marketable, or other acceptable, collateral.
    This bulletin does not apply to home equity loans, lines of credit, 
or refinancing loans.

B. Eligible Community

    An eligible community should be one that has been officially 
targeted for revitalization by a federal, state, or municipal 
governmental entity or agency, or by a government-designated entity 
such as a land bank.

C. Board-Approved Policies and Procedures

    Existing regulations and guidelines require that each bank adopt 
and maintain a general lending policy that establishes appropriate 
limits and standards for extensions of credit that are secured by liens 
or interests in real estate or that finance building construction or 
other improvements.\8\ Additionally, banks should have specific 
policies and procedures that are approved by the board of directors, or 
appropriately designated board committee, and that address loan 
portfolio management, underwriting, and other relevant considerations 
for eligible loans. These board-approved policies and procedures should 
include provisions that address the:
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    \8\ For national banks, refer to 12 CFR 34, ``Real Estate 
Lending and Appraisals,'' appendix A to subpart D, ``Interagency 
Guidelines for Real Estate Lending Policies.'' For federal savings 
associations, refer to 12 CFR 160.101, ``Real estate lending 
standards,'' appendix to 12 CFR 160.101, ``Interagency Guidelines 
for Real Estate Lending Policies.''
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     Defined geographies of an eligible community where the 
bank will consider making eligible loans under the program \9\ and 
describe how the eligible loans are intended to support revitalization 
efforts in the eligible community (e.g., how the origination of 
eligible loans is expected to contribute to the normalization of a 
distressed housing market).
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    \9\ Banks should retain documentation indicating: (1) The 
eligible community is one targeted for revitalization by a 
government entity or agency; (2) the specific revitalization 
criteria used by the government entity or agency; and (3) the type 
of financing and other support, if any, that the governmental entity 
provides to the community.
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     Amount, and the duration, of the bank's financial 
commitment to the program.
     Limitation on the aggregate level of committed eligible 
loans as a percentage of tier 1 capital (as defined in 12 CFR 3.2), 
which should not exceed 10 percent.
     Characteristics of eligible loans, including loan 
structure, credit terms, interest rate and fees, and maximum loan size, 
which should not exceed $200,000.
     Underwriting standards and approval processes for eligible 
loans, including appropriate documentation of relevant credit factors 
and document retention standards.
     Real estate appraisal and evaluation criteria applicable 
to eligible loans.\10\
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    \10\ For all mortgage loan transactions based on an appraisal, 
banks should select and engage appraisers with local market 
competency in valuing the property securing an eligible loan. 
Similarly, any evaluation, if applicable, should be credible and 
consistent with safe and sound banking practices. Given the unique 
underwriting considerations, banks should not use automated 
valuation models in connection with these programs.
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     Credit administration requirements for eligible loans, 
including detailed guidelines regarding oversight of the rehabilitation 
process, such as controls over contracts, disbursements, inspections, 
and project management.
     Compliance with all applicable laws and regulations, 
including the ability-to-repay and other requirements of 12 CFR 1026, 
anti-discrimination laws, and section 5 of the Federal Trade Commission 
Act.
     Content, form, and timing of notice(s) the bank will 
provide in connection with eligible loans to clearly inform the 
borrower that:

--The market value of a rehabilitated property likely will be less than 
the original loan amount upon completion of the rehabilitation.
--The market value may continue to be less than the original loan 
amount thereafter and for the duration of the loan.
--There may be financial implications if the borrower seeks to sell the 
property after rehabilitation and the sale price of such rehabilitated 
property is less than the outstanding loan balance at the time of such 
sale, and explain the implications.

     Incentives that may be available to qualifying borrowers 
(e.g., assistance or

[[Page 80461]]

grants for down payments, fees, and closing costs; at or below market 
interest rates; or rewards for long-term occupancy).
     Monitoring and internal reporting requirements sufficient 
to: (1) Assess the performance, impact, trends, and success of the 
program; and (2) inform the board on at least a quarterly basis of the 
aggregate dollar amount, and percentage of tier 1 capital, of committed 
eligible loans in relation to the board-approved limitation.

D. Notice to the OCC

    The bank should notify the appropriate OCC supervisory office in 
writing at least 30 days before the bank's first origination of an 
eligible loan pursuant to the program or the bank's making of any 
substantive change to a previously submitted program. Substantive 
changes may include the addition of a new eligible community, an 
increase in the financial commitment or duration of a program, or 
material changes to eligible loan characteristics or underwriting 
standards. Such notice should include:
     The date the bank's board (or appropriately designated 
board committee) approved the program's policies and procedures.
     A copy of the board-approved policies and procedures.

II. OCC Supervisory Considerations

A. Supervision of Individual Banks

    After receiving the bank's notice to the OCC, examiners will 
evaluate the bank's program to assess whether it complies with the 
requirements of applicable laws and regulations and is consistent with 
safe and sound lending practices, this bulletin, and other relevant 
guidance. Examiners' assessment will include review of the:
     Financial commitment (as a dollar amount and a percentage 
of Tier 1 capital) and defined geographies for originating eligible 
loans.
     Characteristics of eligible loans and incentives, if 
available, to qualifying borrowers.
     Standards for the underwriting, collateral review, credit 
administration, and approval of eligible loans.
     Borrower notice(s).
     Monitoring and reporting procedures for eligible loans.
     Process for ensuring compliance with all applicable laws 
and regulations.
    In connection with the evaluation of the bank's program, examiners 
may request clarification or changes to the bank's policies and 
procedures before the bank's first origination of an eligible loan 
pursuant to the program or the bank's making of any substantive change 
to a previously submitted program. Such requests may include 
clarification or changes to ensure the program is consistent with safe 
and sound lending practices.
    During the course of subsequent supervisory activities, examiners 
also will monitor and evaluate the program. Examiners evaluations will 
include consideration of the:
     Bank's governance of the program and whether the program 
adequately manages the various risks.
     Performance of loans that exceed the SLTV limits and 
whether delinquent eligible loans are managed and accurately classified 
consistent with the OCC's existing guidance on delinquent loans and in 
compliance with applicable laws pertaining to loans in delinquency.\11\
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    \11\ Applicable laws may include (1) Regulation X, 12 CFR 1024, 
which provides mortgage servicing standards, including early 
intervention requirements and loss mitigation procedures and (2) 
Regulation Z, 12 CFR 1026, which establishes requirements for 
including delinquency-related information on the periodic statements 
required for residential mortgage loans.
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     Bank's internal reporting of program performance, impact, 
trends, and overall success.
     Process to establish and document community development 
consideration, if applicable, under the Community Reinvestment Act.
    For banks found to have shortfalls or unsatisfactory governance or 
controls, examiners will communicate these findings to the bank and 
require remediation to continue the lending activity. In addition, 
examiners may review individual eligible loans to assess asset quality, 
credit risk, and consumer compliance.

B. Overall Evaluation of Programs

    At least annually, the OCC will evaluate the overall impact of 
banks' programs in communities targeted for revitalization. The OCC's 
evaluations will consider, among other matters, whether the programs 
adequately control the various risks, the performance of loans that 
exceed the SLTV limits, and the effect such lending has had on the 
housing market and other economic indicators in communities targeted 
for revitalization.
    Based on these evaluations, the OCC may amend or rescind this 
bulletin. Any decision by the OCC to materially amend or rescind this 
bulletin will apply only to the origination of new loans that exceed 
the SLTV limits. Any loans originated that are consistent with this 
bulletin, or any subsequent revisions thereof, when made will not be 
deemed to be unsafe and unsound solely because of any material 
amendment or rescission of this bulletin.

    Dated: December 18, 2015.
Stuart E. Feldstein,
Director, Legislative and Regulatory Activities Division.
[FR Doc. 2015-32376 Filed 12-23-15; 8:45 am]
 BILLING CODE 4810-33-P