OCC Releases Guidance for "Higher-Loan-To-Value" Lending Programs in Targeted Communities
Citing continued depressed home values in certain communities inhibiting recovery and creating difficulty for creditworthy borrowers to obtain financing in those communities, the OCC stated that it supports efforts by banks to assist in the “revitalization, stabilization, and rehabilitation” of these distressed communities by originating loans with higher LTVs through innovative lending strategies. Thus, on August 21, 2017, the Office of the Comptroller of the Currency issued guidance to banks under its jurisdiction for the establishment of lending programs offering loans with loan to value ratios (LTV) above 100 percent, referred to as “higher-loan-to-value” loans.
Though some banks have collaborated with local, state and federal entities in these communities targeted for rehabilitation, banks have expressed desire to participate in these rehabilitation efforts by offering their own lending programs. The following summarizes some guidelines detailed in the bulletin:
- The loan should be a permanent first lien mortgage with an LTV greater that 100 percent, maximum original loan balance of $200,000 and “be without mortgage insurance, readily marketable collateral, or other acceptable collateral.”
- The proceeds of such lending programs are to be applied to the purchase of or the purchase and rehabilitation of an owner-occupied residential property in an eligible community.
- An eligible community is one that is “officially targeted for revitalization by a federal, state, or municipal governmental entity or agency…”
- Rehabilitation is defined as repairs necessary to bring an inhabitable home to relevant building codes.
- “Banks should notify the appropriate OCC supervisory office in writing at least 30 days before the bank intends to begin originating program loans…”
- The OCC will evaluate the performance of these program loans and the bank’s management of the associated risk to the bank and the borrower.
As these programs would serve credit needs of individuals and the community, participating banks may receive Community Reinvestment Act credit, depending on certain details of the program.
To view the full bulletin, click here.