Washington State Department of Financial Institutions

News Release

Friday, July 20, 2007

Lyn Iverson, Communications Consultant, DFI
PH (360) 902-8731 liverson@dfi.wa.gov

Deborah Bortner, Director of Consumer Services, DFI
PH (360) 902-0511 dbortner@dfi.wa.gov


DFI Adopts statement on Subprime mortgage lending

Consumer protection is goal of multiple agency agreement

OLYMPIA – The Washington State Department of Financial Institutions (DFI) today announced it would adopt a statement of regulatory guidance standards on subprime lending. DFI hopes adoption of these standards will aid in more effectively protecting Washington consumers.

The new standards cover underwriting, management practices and consumer protection provisions. Mortgage originators should follow these standards when marketing and selling certain adjustable-rate mortgage (ARM) products, especially to subprime borrowers.

“These standards address some of the concerns we have with practices within the sub-prime mortgage markets,” said Scott Jarvis, Director of DFI. “We believe a coordinated effort among federal and state regulatory agencies is necessary to protect borrowers and lenders from the pitfalls associated with subprime mortgage lending.”

Specific areas of concern that could put borrowers at potential risk include:

State mortgage regulators modified the original statement, created by multiple federal agencies, to address issues particular to non-depository mortgage lenders licensed and regulated by the states and brokers who originate loans but do not hold them in portfolio.

“This guidance, along with our previously adopted guidance on non-traditional products, is an important tool for state mortgage regulators working to protect consumers in the subprime lending market," said Deborah Bortner, Director of Consumer Services. The division oversees the 385 consumer loan companies and 1,882 mortgage brokers licensed in Washington.

In addition to the Statement on Subprime Mortgage Lending, state regulators plan to issue Examination Guidance for regulators to use in evaluating state-licensed mortgage lenders’ compliance with the new requirements on lending to subprime borrowers.

DFI's Free Guide to Home Loans

DFI's Guide to Home Loans CD-ROM and workbook are available on the department's website. The Guide includes worksheets, links to resources, mortgage calculators, and walks consumers through the closing disclosure documents. Copies can be ordered free of charge on DFI's website: www.dfi.wa.gov.

Home loan information on the Web: http://dfi.wa.gov/consumers/education/home.htm

What is an Adjustable Rate Mortgage? http://www.dfi.wa.gov/consumers/homeloancdterms.htm

A mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly payment amount, however, is usually subject to a Cap.

What is a Subprime Lender? http://www.dfi.wa.gov/consumers/homeloancdterms.htm

A lender that charges a finance rate that is higher than the "prime" rate offered by conventional lenders. Typically, it is a lender who approves loans for individuals who may have poor credit history or no credit history, or who have other characteristics (e.g. high LTV, property type, job) that justify a higher rate.

About DFI www.dfi.wa.gov ▪ (360) 902-8700 ▪ (877) 746-4334

The Washington State Department of Financial Institutions regulates a variety of financial service providers such as banks, credit unions, mortgage brokers, consumer loan companies, payday lenders, and securities brokers and dealers. The department has won numerous awards for its financial literacy and outreach programs developed to protect consumers from financial fraud. In addition to posting information about licensees and administrative actions, the DFI’s website features consumer tips on a variety of financial fraud-related topics.

History of the statement

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

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

DFI Contact:

Deborah Bortner, Director of Consumer Services, PH 360.902.0511

Lyn Iverson, Communications Consultant, PH 360.902.8731, liverson@dfi.wa.gov

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