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:
- Offering certain types of ARM products to subprime borrowers;
- Lack of adequate information given to borrowers to make informed decisions;
- Qualifying borrowers with little or no documentation of income; and
- Imposing substantial prepayment penalties.
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.
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.