New Guidance Approved on Subprime Lending for State-Licensed Mortgage Lenders

The Conference of State Bank Supervisors (CSBS) issued a statement today on subprime lending guidance in response to the Federal regulatory agency statement released late last month.Â The statement addresses subprime lending guidelines for state-licensed mortgage brokers and bankers.

The previous federal statement covered only federally chartered banks and institutions governed by federal law.Â That guidance excluded state-licensed entities.

The CSBS is working towards developing a consistent set of guidelines for both federal and state governed institutions; however, they have a long way to go.Â Only 26 states have agreed to implement the new guidance.

Here is more from the release:

“We believe a coordinated effort among federal and state regulatory agencies is necessary to provide consistent and effective overall supervision of the mortgage industry,” added Jeff Vogel, Wyoming State Bank Commissioner and current Chairman of CSBS.

The CSBS/AARMR/NACCA statement substantially mirrors the federal interagency statement agreed upon by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the National Credit Union Administration, and supported by the FFIEC’s State Liaison Committee. The interagency statement outlines clear and effective management practices, underwriting standards, and consumer protection provisions those institutions should follow when marketing and selling certain adjustable-rate mortgage (ARM) products to sub-prime borrowers.

However, the state mortgage regulators modified the statement to address issues particular to non-depository mortgage lenders and brokers who originate loans but do not hold them in portfolio. These lenders are generally licensed and regulated by the states.

As I have previously mentioned guidance will be ill-suited to address the true needs of the industry until it is uniformly applied across all originators; regardless of licensing or state or federal regulatory purview.

If the CSBS can get the guidelines rolled out to all 50 states in a manner that makes the implementation of the subprime guidance consistent with the federal guidelines they will have taken a major step towards improving the consistency of experience for consumers in the mortgage world.Â Until that happens, it’s just another of the patchwork regulation and governance that plagues our industry.