OCC issued the Bulletin 2019-36 to remind bankers and examiners that real estate and mortgage lending activities are subject to specific regulatory standards and guidelines. Banks originating mortgage loans using asset dissipation underwriting (ADU), also known as asset depletion underwriting or asset amortization underwriting, should develop and implement policies, processes, and control systems for ADU in a manner consistent with safe and sound banking practices set forth in the existing regulations.
ADU activities should align with the banks’ overall business plans and strategies. Such strategies could include working with consumers that have the capacity to repay a mortgage loan even though they do not meet traditional income-based underwriting repayment standards. OCC expects that banks will offer mortgage loan products in a manner that ensures fair access to financial services and fair treatment of consumers and that complies with the applicable laws and regulations. This Bulletin is consistent with the support of OCC for responsible innovation by banks to meet the evolving needs of consumers, businesses, and communities. For banks offering or considering ADU, OCC expects the bank management to:
- develop and maintain risk governance processes that are commensurate with the credit risk of ADU, particularly if the offering constitutes a deviation from the bank’s existing mortgage lending business activities.
- refer to the regulatory real estate and mortgage lending standards and guidelines in 12 CFR 30, 12 CFR 34 (national banks), and 12 CFR 160.101 when developing, implementing, and administering new mortgage underwriting processes such as ADU.
ADU uses an applicant’s assets to calculate a hypothetical cash annuity stream. The annuity stream is added to the other income of the applicant when evaluating the ability of the applicant to make mortgage payments. ADU is often used to underwrite mortgage loans to high-net-worth applicants that acquire and retain significant liquid assets but do not have sufficient cash flow to qualify for a mortgage under standard income attribution criteria.
Related Link: Bulletin 2019-36
Keywords: Americas, US, Banking, Mortgage Lending, Asset Dissipation Underwriting, Governance, Credit Risk, Real Estate, Mortgage Origination, OCC
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