81_FR_40116 81 FR 39998 - Agency Information Collection Activities; Proposed Information Collection; Submission for OMB Review; Description: Risk Management Guidance for Higher Loan-to-Value Lending Programs in Communities Targeted for Revitalization

81 FR 39998 - Agency Information Collection Activities; Proposed Information Collection; Submission for OMB Review; Description: Risk Management Guidance for Higher Loan-to-Value Lending Programs in Communities Targeted for Revitalization

DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency

Federal Register Volume 81, Issue 118 (June 20, 2016)

Page Range39998-40002
FR Document2016-14472

The OCC, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and Federal agencies to take this opportunity to comment on a new information collection, as required by the Paperwork Reduction Act of 1995 (PRA). In accordance with the requirements of the PRA, the OCC may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. The OCC is soliciting PRA-related comment concerning a new information collection titled, ``Description: Risk Management Guidance for Higher Loan-to-Value Lending Programs in Communities Targeted for Revitalization'' (bulletin).

Federal Register, Volume 81 Issue 118 (Monday, June 20, 2016)
[Federal Register Volume 81, Number 118 (Monday, June 20, 2016)]
[Notices]
[Pages 39998-40002]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-14472]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency


Agency Information Collection Activities; Proposed Information 
Collection; Submission for OMB Review; Description: Risk Management 
Guidance for Higher Loan-to-Value Lending Programs in Communities 
Targeted for Revitalization

AGENCY: Office of the Comptroller of the Currency (OCC), Treasury.

ACTION: Notice and request for comment.

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SUMMARY: The OCC, as part of its continuing effort to reduce paperwork 
and respondent burden, invites the general public and Federal agencies 
to take this opportunity to comment on a new information collection, as 
required by the Paperwork Reduction Act of 1995 (PRA).
    In accordance with the requirements of the PRA, the OCC may not 
conduct or sponsor, and the respondent is not required to respond to, 
an information collection unless it displays a currently valid Office 
of Management and Budget (OMB) control number. The OCC is soliciting 
PRA-related comment concerning a new information collection titled, 
``Description: Risk Management Guidance for Higher Loan-to-Value 
Lending Programs in Communities Targeted for Revitalization'' 
(bulletin).

DATES: You should submit written comments by July 20, 2016.

ADDRESSES: Because paper mail in the Washington, DC area and at the OCC 
is subject to delay, commenters are encouraged to submit comments by 
email, if possible. Comments may be sent to: Legislative and Regulatory 
Activities Division, Office of the Comptroller of the Currency, 
Attention: 1557-NEW, 400 7th Street SW., Suite 3E-218, mail stop 9W-11, 
Washington, DC 20219. In addition, comments may be sent by fax to (571) 
465-4326 or by electronic mail to [email protected]. You may 
personally inspect and photocopy comments at the OCC, 400 7th Street 
SW., Washington, DC 20219. For security reasons, the OCC requires that 
visitors make an appointment to inspect comments. You may do so by 
calling (202) 649-6700, or for persons who are deaf or hard of hearing, 
TTY, (202) 649-5597. Upon arrival, visitors will be required to present 
valid government-issued photo identification and to submit to security 
screening in order to inspect and photocopy comments.
    All comments received, including attachments and other supporting 
materials, are part of the public record and subject to public 
disclosure. Do not enclose any information in your comment or 
supporting materials that you consider confidential or inappropriate 
for public disclosure.
    Additionally, please send a copy of your comments by mail to: OCC 
Desk Officer, 1557-NEW, U.S. Office of Management and Budget, 725 17th 
Street NW., #10235, Washington, DC 20503, or by email to: oira 
[email protected].

FOR FURTHER INFORMATION CONTACT: Shaquita Merritt, Clearance Officer, 
(202) 649-5490, or for persons who are deaf or hard of hearing, TTY, 
(202) 649-5597, Legislative and Regulatory Activities Division, Office 
of the Comptroller of the Currency, 400 7th Street SW., Washington, DC 
20219.

SUPPLEMENTARY INFORMATION: 
    Title: Description: Risk Management Guidance for Higher Loan-to-
Value Lending Programs in Communities Targeted for Revitalization.
    OMB Control No.: 1557-NEW.
    Type of Review: Regular.
    Abstract: Under the proposed bulletin, national banks and federal 
savings associations wishing to establish a program for originating 
certain owner-occupied residential mortgage loans where the loan-to-
value (LTV) ratio at origination exceeds 100 percent in communities 
targeted for revitalization should have policies and procedures 
approved by their Board of Directors (Board), or an appropriately 
designated committee, that address the loan portfolio management, 
underwriting, and other relevant considerations for such loans. The 
bulletin advises that banks also should notify the appropriate OCC 
supervisory office in writing at least 30 days prior to the date the 
bank intends to begin originating residential loans pursuant to an 
approved program or implementing any substantive change to a previously 
submitted program and provide a copy of the approved policies and 
procedures to the OCC supervisory office.
    Affected Public: Businesses or other for-profit.
    Burden Estimates: Estimated Number of Respondents: 20.
    Estimated Burden per Respondent for the First Year: Drafting 
Policies--200 hours; Documentation--10 hours per quarter (i.e., 40 
hours); Reporting--10 hours.
    Total Estimated Annual Burden: 5,000 hours.
    Frequency of Response: On occasion.
    The OCC issued a 60-day Federal Register notice regarding the 
collection on December 24, 2015, 80 FR 80458. The OCC received five 
comment letters on the information collection requirements contained in 
the bulletin, one from a group of three trade associations, two from 
community advocacy and homeownership non-profit organizations, one from 
a non-profit research and policy organization, and one from an 
individual.
    The trade associations believed that the required processes 
explained in the proposed bulletin would be disproportionately 
burdensome for a de minimus volume of activity and that it would be 
impractical and unnecessary for banks to get board or committee 
approval of detailed policies in addition to quarterly reporting.
    The OCC notes that existing regulations and guidelines permit an 
institution to make loans in excess of the supervisory loan-to-value 
(SLTV) ratio on an individual basis under specified conditions. The OCC 
is revising the bulletin to clarify that it

[[Page 39999]]

applies to residential mortgage loans where the LTV ratio at 
origination exceeds 100 percent. Accordingly, some loans that exceed 
the SLTV ratio will be outside the scope of the bulletin. Additionally, 
the OCC is amending the bulletin to clarify that approval of the 
program policies and procedures should be by the board or 
``appropriately designated committee.''
    The trade associations stated that the information currently 
provided to banks' internal risk management structures should be 
sufficient to oversee this lending. The commenters asserted that the 
reporting requirements should provide OCC with sufficient data to track 
performance without requiring banks to make data system changes that 
would be time-consuming and not cost-effective.
    The OCC does not intend that banks will be required to change their 
data systems in order to offer a program under the bulletin. In 
describing the supervision of individual banks, the draft bulletin 
referred to consideration of ``bank's internal reporting.'' After 
considering the comments suggesting concern about the OCC's anticipated 
data needs, the OCC has revised the bulletin to reiterate its intent to 
rely on bank-maintained data and to clarify that the supervisory focus 
will be on information about program performance and trends.
    The trade association commenters also stated that excessive 
burdensome requirements undermine the goal of the proposed bulletin, 
which is to support bank efforts to make loans with LTVs greater than 
90% in communities targeted for revitalization. They requested 
clarification that the OCC's annual review is of the overall guidance 
set forth in the proposed bulletin, not individual bank programs. They 
believe the OCC should rely on regular exam cycles to determine the 
program's continued viability and not subject the participating banks 
to another layer of supervision.
    As noted above, the OCC is revising the bulletin to clarify that it 
applies to residential mortgage loans where the LTV ratio at 
origination exceeds 100 percent. In response to comments suggesting 
confusion about the annual review, the OCC revised the bulletin to 
clarify that the overall evaluation of programs that will occur at 
least annually will focus on banks' programs as a whole. Finally, the 
OCC is revising the bulletin to clarify that for the supervision of 
individual banks, examiners will monitor and evaluate a program offered 
by a bank during scheduled supervisory activities, which should not add 
an additional layer of supervision.
    Finally, one non-profit community advocacy group explained that 
through its experience working with financial institutions, clients, 
and community development organizations, it has determined that the 
burden of implementing this policy would be minimal. They suggested 
that if the OCC's policy contained in the draft bulletin avoids the 
unintended consequences of harming portfolio lending,\1\ then there 
would be no burdens associated with this action.
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    \1\ Portfolio lending is lending retained for the lender's own 
investment purposes.
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    A second non-profit community advocacy group noted the processes to 
be developed by the banks to facilitate the goals of the draft bulletin 
should make the analysis/approval processes of the institutions' 
policies commensurate with the risk of the mortgages and the small 
volume of lending likely to take place in each individual institution.
    The non-profit research and policy organization believed that the 
proposed collection of information is necessary for the proper 
performance of the functions of the OCC and that the information has 
practical utility.
    The individual commenter stated that the collection of information 
has no practical utility in terms of supporting long-term community 
revitalization because it sets new, unjustified constraints on lending 
that contravene the White House-led Neighborhood Revitalization 
strategy.
    The OCC believes that the bulletin encourages responsible, 
innovative lending and strikes an appropriate balance between the 
desire to encourage mortgage financing in distressed communities and 
the risks such financing may present to banks and mortgage loan 
borrowers. The programs contemplated by the bulletin offer market-based 
solutions by private lenders, and, therefore, should not contravene the 
White House's Neighborhood Revitalization Initiative, which involves 
federal programs.
    Comments continue to be invited on: (a) Whether the collection of 
information is necessary for the proper performance of the functions of 
the OCC, including whether the information has practical utility; (b) 
The accuracy of the OCC's estimate of the information collection 
burden; (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected; (d) Ways to minimize the burden of the 
collection on respondents, including through the use of automated 
collection techniques or other forms of information technology; and (e) 
Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    Guidance: The text of the guidance \2\ is as follows:
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    \2\ The OCC plans to issue this guidance in the form of a 
bulletin directed to national banks and federal savings 
associations.
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Description: Risk Management Guidance for Higher Loan-to-Value Lending 
Programs in Communities Targeted for Revitalization

Summary

    The Office of the Comptroller of the Currency (OCC) supports 
efforts by national banks and federal savings associations 
(collectively, banks) to assist in the revitalization, stabilization, 
or redevelopment (referred to in this bulletin individually and 
collectively as revitalization) of distressed communities through 
responsible residential mortgage lending. The OCC recognizes that banks 
and other parties have expressed concern that depressed housing values 
in certain distressed communities in the United States inhibit mortgage 
lending in these communities. One way in which banks can support 
revitalization efforts in distressed communities is by offering 
mortgage products for the purchase of, or the purchase and 
rehabilitation of, one- to four-unit residential properties. This 
bulletin provides guidance for managing risks associated with programs 
in which residential mortgage loans are originated where the loan-to-
value ratio (LTV) at origination exceeds 100 percent (referred to in 
this bulletin as higher LTV loans).

Note for Community Banks

    This guidance applies to all OCC-supervised banks wishing to 
establish a program for originating higher LTV loans in communities 
targeted for revitalization. The guidance may offer an opportunity for 
community-focused banks to develop collaborative relationships with one 
another. Any such arrangements should be consistent with the OCC's 
paper entitled ``An Opportunity for Community Banks: Working Together 
Collaboratively'' that the OCC issued on January 13, 2015.\3\ As noted 
in the paper, banks should take care to ensure that any collaboration 
with third parties is subject to effective strategic planning, risk 
management, and oversight.
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    \3\ Refer to OCC NR 2015-1 ``Collaboration Can Facilitate 
Community Bank Competitiveness, OCC Says.''

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[[Page 40000]]

Highlights

    This bulletin provides guidance regarding the
     circumstances under which banks may establish programs to 
originate certain higher LTV loans.
     OCC's supervisory considerations regarding such programs.
    As described in this bulletin, the OCC will actively monitor and 
evaluate the programs established by banks, including the performance 
of higher LTV loans. Additionally, at least annually, the OCC will 
assess the extent to which banks' collective programs are contributing 
to the revitalization of eligible communities and whether banks are 
adequately controlling the risks associated with originating higher LTV 
loans.

Background

    Home values in some U.S. communities remain depressed, in part as a 
result of the financial crisis. These depressed home values contribute 
to financing difficulties being experienced by creditworthy borrowers 
seeking home loans in those communities.
    As these communities work to stabilize home ownership levels and 
home values, the rehabilitation of abandoned or distressed housing 
stock is an important component of broader efforts to strengthen 
communities. Local governments, government-affiliated entities, 
community-based organizations, financial institutions (including 
banks), and others have developed creative solutions for some of these 
challenges. These solutions include strategies for acquiring and 
rehabilitating properties in communities targeted for revitalization. 
Community groups, financial institutions (including banks), non-profit 
organizations, and state and local entities, including land banks, are 
working together to develop and implement innovative residential 
mortgage financing to bring needed lending to economically distressed 
areas. The efforts include providing second-lien loans to finance 
rehabilitation costs, interest-rate discounts, and down payment and 
closing cost assistance. Additionally, the Federal Housing 
Administration, Fannie Mae, and Freddie Mac all currently offer 
rehabilitation financing.\4\
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    \4\ Programs include the Federal Housing Administration's 
Limited 203(k) Rehabilitation Mortgage Insurance Program, Fannie Mae 
HomeStyle Renovation, and Freddie Mac Construction Conversion and 
Renovation Mortgages.
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    In addition to participating in these and other third-party 
efforts, banks have expressed a desire to participate in revitalization 
efforts of distressed communities by offering their own loan products. 
The value of the collateral in communities where home values remain 
depressed often can present challenges to banks' residential lending in 
part because of current supervisory loan-to-value (SLTV) limits. These 
SLTV limits generally provide that owner-occupied residential loans 
with LTVs above 90 percent should have appropriate credit enhancement 
(e.g., mortgage insurance or readily marketable collateral). Distressed 
sales, including short sales and foreclosures, have negatively affected 
home values in these communities. Further, in communities with minimal 
sales activity, finding comparable property sales becomes challenging 
when appraisals or evaluations are required. All of these factors 
contribute to buyers of distressed properties experiencing difficulty 
securing adequate financing to cover the often substantial renovation 
costs required to make the properties habitable.
    The OCC recognizes that supporting long-term community 
revitalization may necessitate responsible, innovative lending 
strategies. One way in which banks can support revitalization efforts 
is through lending within established exceptions to the SLTV limits for 
residential loans. Existing regulations and guidelines already 
recognize that it may be appropriate, in individual cases, for banks to 
make loans in excess of the SLTV limits, based on support provided by 
other credit factors.\5\ The regulations and guidelines also recognize 
that banks may provide for prudently underwritten exceptions for 
creditworthy borrowers whose needs do not fit within the banks' general 
lending policies, including SLTV limits, on a loan-by-loan basis under 
certain conditions.\6\ These conditions include that the aggregate 
amount of all loans in excess of the SLTV limits (which includes higher 
LTV loans) should not exceed 100 percent of total capital, that the 
boards of directors establish standards for reviewing and approving 
exception loans, and that written justification setting forth relevant 
credit factors accompany all approvals of exception loans.\7\ Credit 
factors for these purposes may include the borrower's capacity to 
adequately service the debt, the borrower's overall creditworthiness, 
and the level of funds invested in the property.\8\
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    \5\ For national banks, refer to 12 CFR 34, appendix A to 
subpart D, ``Interagency Guidelines for Real Estate Lending 
Policies.'' For federal savings associations, refer to 12 CFR 
160.101, appendix to 12 CFR 160.101, ``Interagency Guidelines for 
Real Estate Lending Policies.''
    \6\ Id.
    \7\ Id.
    \8\ Id.
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    The OCC believes that in some circumstances, a bank also can design 
a program to offer higher LTV loans in communities targeted for 
revitalization in a manner consistent with safe and sound lending 
practices and current regulations and guidelines. As described in the 
``Program Criteria'' section of this bulletin, such loans may include 
loans in eligible communities originated in accordance with the bank 
program's policies and procedures. Important elements of such a program 
are the bank's policies and procedures for complying with the ability-
to-repay standard of Regulation Z \9\ and the bank's separate 
underwriting standards and approval processes for higher LTV loans.
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    \9\ The Dodd-Frank Wall Street Reform and Consumer Protection 
Act amended the Truth in Lending Act to require creditors to make a 
reasonable, good faith determination of a consumer's ability to 
repay a mortgage loan, absent specified exceptions. Refer to 15 
U.S.C. 1639c. The Consumer Financial Protection Bureau issued a 
final rule amending Regulation Z to implement these ability-to-repay 
requirements, which became effective January 1, 2014. Refer to 78 FR 
6621, January 30, 2013.
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    Bank lending under such a program may serve the credit needs of 
individual borrowers and the community, and the bank may receive 
Community Reinvestment Act consideration depending on the specifics of 
the program. The origination of higher LTV loans is not, however, 
without risk. Using internal bank data, the OCC will monitor and 
evaluate the performance of a bank's program loans and how a bank's 
program manages both risks to the bank and its borrowers. For its 
aggregate assessment, which will occur at least annually, the OCC will 
evaluate the collective impact of programs offered by all banks in 
eligible communities. In assessing the impact of one or more programs 
in eligible communities, the OCC recognizes that revitalization efforts 
may be a multi-year undertaking.

I. Program Criteria

A. Program Loan
    The proceeds of a program loan should be used to finance the 
purchase of,\10\ or purchase and rehabilitation of, an owner-occupied 
residential property located in an eligible community. A program loan 
should be a permanent first-lien mortgage with an LTV ratio at the time 
of origination that exceeds 100 percent, without mortgage insurance, 
readily marketable collateral, or other

[[Page 40001]]

acceptable collateral. A program loan also should have an original loan 
balance of $200,000 or less and be originated under a program developed 
pursuant to this bulletin.
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    \10\ An example is the purchase of a recently rehabilitated 
property.
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    For purposes of this bulletin
     ``rehabilitation'' means the repairs necessary to improve 
a property in substandard condition to a level consistent with 
applicable building codes. A property is in ``substandard condition'' 
when its present condition endangers the health, safety, or well-being 
of the occupant(s) such that it requires extensive repair for the 
property to be habitable.
     a ``purchase and rehabilitation'' loan includes a loan 
that finances

--the purchase of the property, plus the projected rehabilitation 
costs; or
--the amount of a purchase consummated not more than six months before 
the date of the bank's loan commitment, plus the projected 
rehabilitation costs.
    Program loans do not include home equity loans, lines of credit, or 
refinancing loans.
B. Eligible Community
    An eligible community should be one that has been officially 
targeted for revitalization by a federal, state, or municipal 
governmental entity or agency, or by a government-designated entity 
such as a land bank.
C. Program Policies and Procedures
    Existing regulations and guidelines require that each bank adopt 
and maintain a general lending policy that establishes appropriate 
limits and standards for extensions of credit that are secured by liens 
on or interests in real estate or that finance building construction or 
other improvements.\11\ In addition to the general lending policies 
developed pursuant to existing regulations and guidelines, banks should 
have specific policies and procedures for program loans that are 
approved by the board of directors, or an appropriately designated 
committee, and that address loan portfolio management, underwriting, 
and other relevant considerations. These policies and procedures should 
include provisions that address the
---------------------------------------------------------------------------

    \11\ For national banks, refer to 12 CFR 34, ``Real Estate 
Lending and Appraisals,'' appendix A to subpart D, ``Interagency 
Guidelines for Real Estate Lending Policies.'' For federal savings 
associations, refer to 12 CFR 160.101, ``Real estate lending 
standards,'' appendix to 12 CFR 160.101, ``Interagency Guidelines 
for Real Estate Lending Policies.''
---------------------------------------------------------------------------

     defined geographies of an eligible community where the 
bank will consider making program loans \12\ and describe how the 
program loans are intended to support revitalization efforts in the 
eligible community (e.g., how the origination of program loans is 
expected to contribute to the normalization of a distressed housing 
market).
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    \12\ Banks should retain documentation indicating: (1) The 
eligible community is one targeted for revitalization by a 
government entity or agency; (2) the specific revitalization 
criteria used by the government entity or agency; and (3) the type 
of financing and other support, if any, that the governmental entity 
or agency provides to the community.
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     amount, and the duration, of the bank's financial 
commitment to the program.
     limitation on the aggregate level of committed program 
loans as a percentage of tier 1 capital (as defined in 12 CFR 3.2), 
which should not exceed 10 percent.
     characteristics of program loans, including loan 
structure, credit terms, interest rate and fees, and maximum loan size, 
which should not exceed $200,000.
     underwriting standards and approval processes for program 
loans, including appropriate documentation of relevant credit factors 
and document retention standards.
     real estate appraisal and evaluation criteria applicable 
to program loans.\13\
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    \13\ For all mortgage loan transactions based on an appraisal, 
banks should select and engage appraisers with local market 
competency in valuing the property securing a program loan. 
Similarly, any evaluation, if applicable, should be credible and 
consistent with safe and sound banking practices. Given the unique 
underwriting considerations, banks should not use automated 
valuation models in connection with these programs.
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     credit administration requirements for program loans, 
including detailed guidelines regarding oversight of the rehabilitation 
process, such as controls over contracts, disbursements, inspections, 
and project management.
     compliance with all applicable laws and regulations, 
including the ability-to-repay and other requirements of 12 CFR 1026, 
anti-discrimination laws, and section 5 of the Federal Trade Commission 
Act.
     content, form, and timing of notice(s) the bank will 
provide in connection with program loans to clearly inform the borrower 
that

--the market value of a property securing a higher LTV loan is less 
than the loan amount at origination.
--the market value of a rehabilitated property likely will be less than 
the original loan amount upon completion of the rehabilitation.
--the market value may continue to be less than the original loan 
amount thereafter and for the duration of the loan.
--there may be financial implications to the borrower if the borrower 
seeks to sell the property after rehabilitation and the sale price of 
such rehabilitated property is less than the outstanding loan balance 
at the time of such sale, and explain the implications.

     incentives that may be available to qualifying borrowers 
(e.g., assistance or grants for down payments, fees, and closing costs; 
at or below market interest rates; or rewards for long-term occupancy) 
and home buyer education or other counseling that may be provided by or 
through the bank or its third-party partners.
     monitoring and internal reporting requirements sufficient 
to: (1) Assess program performance and trends; and (2) inform the 
board, or appropriately designated committee, on at least a quarterly 
basis of the aggregate dollar amount, and percentage of tier 1 capital, 
of committed program loans in relation to the program limitations.
D. Notice to the OCC
    The bank should notify the appropriate OCC supervisory office in 
writing at least 30 days before the bank intends to begin originating 
program loans or to make any substantive change to a previously 
submitted program. Substantive changes may include the addition of a 
new eligible community, an increase in the financial commitment or 
duration of a program, or material changes to program loan 
characteristics or underwriting standards. Such notice should include
     the date the bank's board (or appropriately designated 
committee) approved the program policies and procedures.
     a copy of the program policies and procedures.

II. OCC Supervisory Considerations

A. Supervision of Individual Banks
    After receiving the bank's notice to the OCC, examiners will 
evaluate the bank's program to assess whether it is consistent with 
safe and sound lending practices and the guidelines outlined in this 
bulletin. Examiners' assessment will include reviewing the
     characteristics of program loans and incentives, if 
available, to qualifying borrowers.
     standards for the underwriting, collateral review, credit 
administration, and approval of program loans.
     borrower notice(s).
     monitoring and reporting procedures for program loans.
     process for ensuring compliance with all applicable laws 
and regulations.

[[Page 40002]]

     financial commitment (as a dollar amount and a percentage 
of tier 1 capital) and defined geographies for originating program 
loans.
    In connection with the evaluation of the bank's program, examiners 
may request clarification or changes to the bank's policies and 
procedures before the bank's first origination of a program loan or the 
bank's making of any substantive change to a previously submitted 
program. Such requests may include clarification or changes to ensure 
the program is consistent with safe and sound lending practices.
    Examiners also will monitor and evaluate the bank's program during 
scheduled supervisory activities. Examiner evaluations will include 
consideration of the
     bank's governance of the program and whether the program 
adequately manages the various risks.
     performance of program loans and whether delinquent 
program loans are managed and accurately classified consistent with the 
OCC's existing guidance on delinquent loans and in compliance with 
applicable laws pertaining to loans in delinquency.\14\
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    \14\ Applicable laws may include (1) Regulation X, 12 CFR 1024, 
which provides mortgage servicing standards, including early 
intervention requirements and loss mitigation procedures and (2) 
Regulation Z, 12 CFR 1026, which establishes requirements for 
including delinquency-related information on the periodic statements 
required for residential mortgage loans.
---------------------------------------------------------------------------

     bank's internal reporting of program performance and 
trends.
     process to establish and document community development 
consideration, if applicable, under the Community Reinvestment Act.
    Banks with programs that are found to have unsatisfactory 
governance or controls will be expected to undertake corrective action 
in order to continue the lending activity in a safe and sound manner. 
In addition, examiners may review individual program loans to assess 
asset quality, credit risk, and consumer compliance.
B. Overall Evaluation of Programs
    At least annually, the OCC will evaluate the extent to which banks' 
programs on the whole are contributing to the revitalization efforts in 
eligible communities. The OCC's evaluations will consider, among other 
matters, the effect such programs have had on the housing markets and 
other economic indicators in eligible communities targeted by the 
programs, whether the programs adequately control the various risks, 
and the general performance of program loans. The OCC recognizes that 
it may take multiple years before revitalization efforts in eligible 
communities result in material changes.
    Based on these evaluations, the OCC may amend or rescind this 
bulletin. Any decision by the OCC to materially amend or rescind this 
bulletin will apply only to the origination of new higher LTV loans. 
Any loans originated that are consistent with this bulletin, or any 
subsequent revisions thereof, when made will not be deemed to be unsafe 
and unsound solely because of any measurable amendment or rescission of 
this bulletin.

    Dated: June 14, 2016.
Stuart E. Feldstein,
Director, Legislative and Regulatory Activities Division.
[FR Doc. 2016-14472 Filed 6-17-16; 8:45 am]
 BILLING CODE 4810-33-P



                                                    39998                          Federal Register / Vol. 81, No. 118 / Monday, June 20, 2016 / Notices

                                                    http://www.regulations.gov, as                             In accordance with the requirements                 Lending Programs in Communities
                                                    described in the system of records                      of the PRA, the OCC may not conduct                    Targeted for Revitalization.
                                                    notice (DOT/ALL–14 FDMS), which can                     or sponsor, and the respondent is not                    OMB Control No.: 1557–NEW.
                                                    be reviewed at http://www.dot.gov/                      required to respond to, an information                   Type of Review: Regular.
                                                    privacy.                                                collection unless it displays a currently                Abstract: Under the proposed
                                                      Docket: Background documents or                       valid Office of Management and Budget                  bulletin, national banks and federal
                                                    comments received may be read at                        (OMB) control number. The OCC is                       savings associations wishing to establish
                                                    http://www.regulations.gov at any time.                 soliciting PRA-related comment                         a program for originating certain owner-
                                                    Follow the online instructions for                      concerning a new information collection                occupied residential mortgage loans
                                                    accessing the docket or go to the Docket                titled, ‘‘Description: Risk Management                 where the loan-to-value (LTV) ratio at
                                                    Operations in Room W12–140 of the                       Guidance for Higher Loan-to-Value                      origination exceeds 100 percent in
                                                    West Building Ground Floor at 1200                      Lending Programs in Communities                        communities targeted for revitalization
                                                    New Jersey Avenue SE., Washington,                      Targeted for Revitalization’’ (bulletin).              should have policies and procedures
                                                    DC, between 9 a.m. and 5 p.m., Monday                   DATES: You should submit written                       approved by their Board of Directors
                                                    through Friday, except Federal holidays.                comments by July 20, 2016.                             (Board), or an appropriately designated
                                                    FOR FURTHER INFORMATION CONTACT: Dan                    ADDRESSES: Because paper mail in the
                                                                                                                                                                   committee, that address the loan
                                                    Ngo, (202) 267–4264, 800 Independence                   Washington, DC area and at the OCC is                  portfolio management, underwriting,
                                                    Avenue SW., Washington, DC 20591.                       subject to delay, commenters are                       and other relevant considerations for
                                                      This notice is published pursuant to                  encouraged to submit comments by                       such loans. The bulletin advises that
                                                    14 CFR 11.85.                                           email, if possible. Comments may be                    banks also should notify the appropriate
                                                                                                            sent to: Legislative and Regulatory                    OCC supervisory office in writing at
                                                      Issued in Washington, DC, on June 13,
                                                    2016.                                                   Activities Division, Office of the                     least 30 days prior to the date the bank
                                                                                                            Comptroller of the Currency, Attention:                intends to begin originating residential
                                                    Lirio Liu,
                                                                                                            1557–NEW, 400 7th Street SW., Suite                    loans pursuant to an approved program
                                                    Director, Office of Rulemaking.
                                                                                                            3E–218, mail stop 9W–11, Washington,                   or implementing any substantive change
                                                    Petition for Exemption                                  DC 20219. In addition, comments may                    to a previously submitted program and
                                                      Docket No.: FAA–2015–1851.                            be sent by fax to (571) 465–4326 or by                 provide a copy of the approved policies
                                                      Petitioner: Cable News Network CNN.                   electronic mail to prainfo@occ.treas.gov.              and procedures to the OCC supervisory
                                                      Section(s) of 14 CFR Affected:                        You may personally inspect and                         office.
                                                    § 91.119(b)(c).                                                                                                  Affected Public: Businesses or other
                                                                                                            photocopy comments at the OCC, 400
                                                      Description of Relief Sought: The                                                                            for-profit.
                                                                                                            7th Street SW., Washington, DC 20219.                    Burden Estimates: Estimated Number
                                                    petitioner is requesting relief in order to             For security reasons, the OCC requires
                                                    modify the requirements for submitting                                                                         of Respondents: 20.
                                                                                                            that visitors make an appointment to                     Estimated Burden per Respondent for
                                                    a written Plan of Activities to the local               inspect comments. You may do so by
                                                    FSDO prior to closed-set filming. The                                                                          the First Year: Drafting Policies—200
                                                                                                            calling (202) 649–6700, or for persons                 hours; Documentation—10 hours per
                                                    petitioner is also requesting to be able                who are deaf or hard of hearing, TTY,
                                                    to fly the Fotokite Pro in congested areas                                                                     quarter (i.e., 40 hours); Reporting—10
                                                                                                            (202) 649–5597. Upon arrival, visitors                 hours.
                                                    and closer than 500 feet to non-                        will be required to present valid
                                                    participating persons, vessels, vehicles,                                                                        Total Estimated Annual Burden:
                                                                                                            government-issued photo identification                 5,000 hours.
                                                    and structures.                                         and to submit to security screening in                   Frequency of Response: On occasion.
                                                    [FR Doc. 2016–14453 Filed 6–17–16; 8:45 am]             order to inspect and photocopy                           The OCC issued a 60-day Federal
                                                    BILLING CODE 4910–13–P                                  comments.                                              Register notice regarding the collection
                                                                                                               All comments received, including                    on December 24, 2015, 80 FR 80458.
                                                                                                            attachments and other supporting                       The OCC received five comment letters
                                                    DEPARTMENT OF THE TREASURY                              materials, are part of the public record               on the information collection
                                                                                                            and subject to public disclosure. Do not               requirements contained in the bulletin,
                                                    Office of the Comptroller of the                        enclose any information in your                        one from a group of three trade
                                                    Currency                                                comment or supporting materials that                   associations, two from community
                                                                                                            you consider confidential or                           advocacy and homeownership non-
                                                    Agency Information Collection                           inappropriate for public disclosure.                   profit organizations, one from a non-
                                                    Activities; Proposed Information                           Additionally, please send a copy of                 profit research and policy organization,
                                                    Collection; Submission for OMB                          your comments by mail to: OCC Desk                     and one from an individual.
                                                    Review; Description: Risk Management                    Officer, 1557–NEW, U.S. Office of                        The trade associations believed that
                                                    Guidance for Higher Loan-to-Value                       Management and Budget, 725 17th                        the required processes explained in the
                                                    Lending Programs in Communities                         Street NW., #10235, Washington, DC                     proposed bulletin would be
                                                    Targeted for Revitalization                             20503, or by email to: oira submission@                disproportionately burdensome for a de
                                                    AGENCY: Office of the Comptroller of the                omb.eop.gov.                                           minimus volume of activity and that it
                                                    Currency (OCC), Treasury.                               FOR FURTHER INFORMATION CONTACT:                       would be impractical and unnecessary
                                                    ACTION: Notice and request for comment.
                                                                                                            Shaquita Merritt, Clearance Officer,                   for banks to get board or committee
                                                                                                            (202) 649–5490, or for persons who are                 approval of detailed policies in addition
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                                                    SUMMARY:   The OCC, as part of its                      deaf or hard of hearing, TTY, (202) 649–               to quarterly reporting.
                                                    continuing effort to reduce paperwork                   5597, Legislative and Regulatory                         The OCC notes that existing
                                                    and respondent burden, invites the                      Activities Division, Office of the                     regulations and guidelines permit an
                                                    general public and Federal agencies to                  Comptroller of the Currency, 400 7th                   institution to make loans in excess of
                                                    take this opportunity to comment on a                   Street SW., Washington, DC 20219.                      the supervisory loan-to-value (SLTV)
                                                    new information collection, as required                 SUPPLEMENTARY INFORMATION:                             ratio on an individual basis under
                                                    by the Paperwork Reduction Act of 1995                     Title: Description: Risk Management                 specified conditions. The OCC is
                                                    (PRA).                                                  Guidance for Higher Loan-to-Value                      revising the bulletin to clarify that it


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                                                                                   Federal Register / Vol. 81, No. 118 / Monday, June 20, 2016 / Notices                                                    39999

                                                    applies to residential mortgage loans                   should not add an additional layer of                  technology; and (e) Estimates of capital
                                                    where the LTV ratio at origination                      supervision.                                           or start-up costs and costs of operation,
                                                    exceeds 100 percent. Accordingly, some                     Finally, one non-profit community                   maintenance, and purchase of services
                                                    loans that exceed the SLTV ratio will be                advocacy group explained that through                  to provide information.
                                                    outside the scope of the bulletin.                      its experience working with financial
                                                                                                                                                                      Guidance: The text of the guidance 2
                                                    Additionally, the OCC is amending the                   institutions, clients, and community
                                                                                                                                                                   is as follows:
                                                    bulletin to clarify that approval of the                development organizations, it has
                                                    program policies and procedures should                  determined that the burden of                          Description: Risk Management
                                                    be by the board or ‘‘appropriately                      implementing this policy would be                      Guidance for Higher Loan-to-Value
                                                    designated committee.’’                                 minimal. They suggested that if the                    Lending Programs in Communities
                                                       The trade associations stated that the               OCC’s policy contained in the draft                    Targeted for Revitalization
                                                    information currently provided to                       bulletin avoids the unintended
                                                                                                            consequences of harming portfolio                      Summary
                                                    banks’ internal risk management
                                                    structures should be sufficient to                      lending,1 then there would be no                         The Office of the Comptroller of the
                                                    oversee this lending. The commenters                    burdens associated with this action.                   Currency (OCC) supports efforts by
                                                    asserted that the reporting requirements                   A second non-profit community
                                                                                                                                                                   national banks and federal savings
                                                    should provide OCC with sufficient data                 advocacy group noted the processes to
                                                                                                                                                                   associations (collectively, banks) to
                                                    to track performance without requiring                  be developed by the banks to facilitate
                                                                                                                                                                   assist in the revitalization, stabilization,
                                                    banks to make data system changes that                  the goals of the draft bulletin should
                                                                                                                                                                   or redevelopment (referred to in this
                                                    would be time-consuming and not cost-                   make the analysis/approval processes of
                                                                                                                                                                   bulletin individually and collectively as
                                                    effective.                                              the institutions’ policies commensurate
                                                                                                            with the risk of the mortgages and the                 revitalization) of distressed
                                                       The OCC does not intend that banks                                                                          communities through responsible
                                                    will be required to change their data                   small volume of lending likely to take
                                                                                                            place in each individual institution.                  residential mortgage lending. The OCC
                                                    systems in order to offer a program                                                                            recognizes that banks and other parties
                                                    under the bulletin. In describing the                      The non-profit research and policy
                                                                                                            organization believed that the proposed                have expressed concern that depressed
                                                    supervision of individual banks, the                                                                           housing values in certain distressed
                                                    draft bulletin referred to consideration                collection of information is necessary
                                                                                                            for the proper performance of the                      communities in the United States
                                                    of ‘‘bank’s internal reporting.’’ After                                                                        inhibit mortgage lending in these
                                                    considering the comments suggesting                     functions of the OCC and that the
                                                                                                            information has practical utility.                     communities. One way in which banks
                                                    concern about the OCC’s anticipated                                                                            can support revitalization efforts in
                                                                                                               The individual commenter stated that
                                                    data needs, the OCC has revised the                                                                            distressed communities is by offering
                                                                                                            the collection of information has no
                                                    bulletin to reiterate its intent to rely on                                                                    mortgage products for the purchase of,
                                                                                                            practical utility in terms of supporting
                                                    bank-maintained data and to clarify that                                                                       or the purchase and rehabilitation of,
                                                                                                            long-term community revitalization
                                                    the supervisory focus will be on                                                                               one- to four-unit residential properties.
                                                                                                            because it sets new, unjustified
                                                    information about program performance                                                                          This bulletin provides guidance for
                                                                                                            constraints on lending that contravene
                                                    and trends.                                                                                                    managing risks associated with
                                                                                                            the White House-led Neighborhood
                                                       The trade association commenters                                                                            programs in which residential mortgage
                                                                                                            Revitalization strategy.
                                                    also stated that excessive burdensome                      The OCC believes that the bulletin                  loans are originated where the loan-to-
                                                    requirements undermine the goal of the                  encourages responsible, innovative                     value ratio (LTV) at origination exceeds
                                                    proposed bulletin, which is to support                  lending and strikes an appropriate                     100 percent (referred to in this bulletin
                                                    bank efforts to make loans with LTVs                    balance between the desire to encourage                as higher LTV loans).
                                                    greater than 90% in communities                         mortgage financing in distressed
                                                    targeted for revitalization. They                       communities and the risks such                         Note for Community Banks
                                                    requested clarification that the OCC’s                  financing may present to banks and
                                                    annual review is of the overall guidance                                                                          This guidance applies to all OCC-
                                                                                                            mortgage loan borrowers. The programs                  supervised banks wishing to establish a
                                                    set forth in the proposed bulletin, not                 contemplated by the bulletin offer
                                                    individual bank programs. They believe                                                                         program for originating higher LTV
                                                                                                            market-based solutions by private                      loans in communities targeted for
                                                    the OCC should rely on regular exam                     lenders, and, therefore, should not
                                                    cycles to determine the program’s                                                                              revitalization. The guidance may offer
                                                                                                            contravene the White House’s                           an opportunity for community-focused
                                                    continued viability and not subject the                 Neighborhood Revitalization Initiative,
                                                    participating banks to another layer of                                                                        banks to develop collaborative
                                                                                                            which involves federal programs.                       relationships with one another. Any
                                                    supervision.                                               Comments continue to be invited on:
                                                       As noted above, the OCC is revising                                                                         such arrangements should be consistent
                                                                                                            (a) Whether the collection of
                                                    the bulletin to clarify that it applies to                                                                     with the OCC’s paper entitled ‘‘An
                                                                                                            information is necessary for the proper
                                                    residential mortgage loans where the                                                                           Opportunity for Community Banks:
                                                                                                            performance of the functions of the
                                                    LTV ratio at origination exceeds 100                                                                           Working Together Collaboratively’’ that
                                                                                                            OCC, including whether the information
                                                    percent. In response to comments                                                                               the OCC issued on January 13, 2015.3 As
                                                                                                            has practical utility; (b) The accuracy of
                                                    suggesting confusion about the annual                                                                          noted in the paper, banks should take
                                                                                                            the OCC’s estimate of the information
                                                    review, the OCC revised the bulletin to                                                                        care to ensure that any collaboration
                                                                                                            collection burden; (c) Ways to enhance
                                                    clarify that the overall evaluation of                                                                         with third parties is subject to effective
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                                                                                                            the quality, utility, and clarity of the
                                                    programs that will occur at least                                                                              strategic planning, risk management,
                                                                                                            information to be collected; (d) Ways to
                                                    annually will focus on banks’ programs                  minimize the burden of the collection                  and oversight.
                                                    as a whole. Finally, the OCC is revising                on respondents, including through the
                                                    the bulletin to clarify that for the                    use of automated collection techniques
                                                                                                                                                                     2 The OCC plans to issue this guidance in the

                                                    supervision of individual banks,                                                                               form of a bulletin directed to national banks and
                                                                                                            or other forms of information                          federal savings associations.
                                                    examiners will monitor and evaluate a                                                                            3 Refer to OCC NR 2015–1 ‘‘Collaboration Can
                                                    program offered by a bank during                          1 Portfolio lending is lending retained for the      Facilitate Community Bank Competitiveness, OCC
                                                    scheduled supervisory activities, which                 lender’s own investment purposes.                      Says.’’



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                                                    40000                          Federal Register / Vol. 81, No. 118 / Monday, June 20, 2016 / Notices

                                                    Highlights                                              revitalization efforts of distressed                   the level of funds invested in the
                                                       This bulletin provides guidance                      communities by offering their own loan                 property.8
                                                                                                            products. The value of the collateral in                  The OCC believes that in some
                                                    regarding the
                                                                                                            communities where home values remain                   circumstances, a bank also can design a
                                                       • circumstances under which banks
                                                                                                            depressed often can present challenges                 program to offer higher LTV loans in
                                                    may establish programs to originate
                                                                                                            to banks’ residential lending in part                  communities targeted for revitalization
                                                    certain higher LTV loans.
                                                                                                            because of current supervisory loan-to-                in a manner consistent with safe and
                                                       • OCC’s supervisory considerations
                                                                                                            value (SLTV) limits. These SLTV limits                 sound lending practices and current
                                                    regarding such programs.                                                                                       regulations and guidelines. As described
                                                                                                            generally provide that owner-occupied
                                                       As described in this bulletin, the OCC                                                                      in the ‘‘Program Criteria’’ section of this
                                                                                                            residential loans with LTVs above 90
                                                    will actively monitor and evaluate the                                                                         bulletin, such loans may include loans
                                                                                                            percent should have appropriate credit
                                                    programs established by banks,                                                                                 in eligible communities originated in
                                                                                                            enhancement (e.g., mortgage insurance
                                                    including the performance of higher                                                                            accordance with the bank program’s
                                                                                                            or readily marketable collateral).
                                                    LTV loans. Additionally, at least                                                                              policies and procedures. Important
                                                                                                            Distressed sales, including short sales
                                                    annually, the OCC will assess the extent                                                                       elements of such a program are the
                                                                                                            and foreclosures, have negatively
                                                    to which banks’ collective programs are                                                                        bank’s policies and procedures for
                                                                                                            affected home values in these
                                                    contributing to the revitalization of                   communities. Further, in communities                   complying with the ability-to-repay
                                                    eligible communities and whether banks                  with minimal sales activity, finding                   standard of Regulation Z 9 and the
                                                    are adequately controlling the risks                    comparable property sales becomes                      bank’s separate underwriting standards
                                                    associated with originating higher LTV                  challenging when appraisals or                         and approval processes for higher LTV
                                                    loans.                                                  evaluations are required. All of these                 loans.
                                                    Background                                              factors contribute to buyers of distressed                Bank lending under such a program
                                                                                                            properties experiencing difficulty                     may serve the credit needs of individual
                                                       Home values in some U.S.                                                                                    borrowers and the community, and the
                                                                                                            securing adequate financing to cover the
                                                    communities remain depressed, in part                                                                          bank may receive Community
                                                                                                            often substantial renovation costs
                                                    as a result of the financial crisis. These                                                                     Reinvestment Act consideration
                                                                                                            required to make the properties
                                                    depressed home values contribute to                     habitable.                                             depending on the specifics of the
                                                    financing difficulties being experienced                   The OCC recognizes that supporting                  program. The origination of higher LTV
                                                    by creditworthy borrowers seeking                       long-term community revitalization may                 loans is not, however, without risk.
                                                    home loans in those communities.                        necessitate responsible, innovative                    Using internal bank data, the OCC will
                                                       As these communities work to                         lending strategies. One way in which                   monitor and evaluate the performance
                                                    stabilize home ownership levels and                     banks can support revitalization efforts               of a bank’s program loans and how a
                                                    home values, the rehabilitation of                      is through lending within established                  bank’s program manages both risks to
                                                    abandoned or distressed housing stock                   exceptions to the SLTV limits for                      the bank and its borrowers. For its
                                                    is an important component of broader                    residential loans. Existing regulations                aggregate assessment, which will occur
                                                    efforts to strengthen communities. Local                and guidelines already recognize that it               at least annually, the OCC will evaluate
                                                    governments, government-affiliated                      may be appropriate, in individual cases,               the collective impact of programs
                                                    entities, community-based                               for banks to make loans in excess of the               offered by all banks in eligible
                                                    organizations, financial institutions                   SLTV limits, based on support provided                 communities. In assessing the impact of
                                                    (including banks), and others have                      by other credit factors.5 The regulations              one or more programs in eligible
                                                    developed creative solutions for some of                and guidelines also recognize that banks               communities, the OCC recognizes that
                                                    these challenges. These solutions                       may provide for prudently underwritten                 revitalization efforts may be a multi-year
                                                    include strategies for acquiring and                    exceptions for creditworthy borrowers                  undertaking.
                                                    rehabilitating properties in communities                whose needs do not fit within the banks’
                                                    targeted for revitalization. Community                                                                         I. Program Criteria
                                                                                                            general lending policies, including
                                                    groups, financial institutions (including               SLTV limits, on a loan-by-loan basis                   A. Program Loan
                                                    banks), non-profit organizations, and                   under certain conditions.6 These                          The proceeds of a program loan
                                                    state and local entities, including land                conditions include that the aggregate                  should be used to finance the purchase
                                                    banks, are working together to develop                  amount of all loans in excess of the                   of,10 or purchase and rehabilitation of,
                                                    and implement innovative residential                    SLTV limits (which includes higher                     an owner-occupied residential property
                                                    mortgage financing to bring needed                      LTV loans) should not exceed 100                       located in an eligible community. A
                                                    lending to economically distressed                      percent of total capital, that the boards              program loan should be a permanent
                                                    areas. The efforts include providing                    of directors establish standards for                   first-lien mortgage with an LTV ratio at
                                                    second-lien loans to finance                            reviewing and approving exception                      the time of origination that exceeds 100
                                                    rehabilitation costs, interest-rate                     loans, and that written justification                  percent, without mortgage insurance,
                                                    discounts, and down payment and                         setting forth relevant credit factors                  readily marketable collateral, or other
                                                    closing cost assistance. Additionally,                  accompany all approvals of exception
                                                    the Federal Housing Administration,                     loans.7 Credit factors for these purposes                8 Id.
                                                    Fannie Mae, and Freddie Mac all                         may include the borrower’s capacity to                    9 The Dodd-Frank Wall Street Reform and

                                                    currently offer rehabilitation financing.4              adequately service the debt, the                       Consumer Protection Act amended the Truth in
                                                                                                                                                                   Lending Act to require creditors to make a
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                                                       In addition to participating in these                borrower’s overall creditworthiness, and               reasonable, good faith determination of a
                                                    and other third-party efforts, banks have                                                                      consumer’s ability to repay a mortgage loan, absent
                                                    expressed a desire to participate in                      5 For national banks, refer to 12 CFR 34, appendix
                                                                                                                                                                   specified exceptions. Refer to 15 U.S.C. 1639c. The
                                                                                                            A to subpart D, ‘‘Interagency Guidelines for Real      Consumer Financial Protection Bureau issued a
                                                      4 Programs include the Federal Housing                Estate Lending Policies.’’ For federal savings         final rule amending Regulation Z to implement
                                                    Administration’s Limited 203(k) Rehabilitation          associations, refer to 12 CFR 160.101, appendix to     these ability-to-repay requirements, which became
                                                    Mortgage Insurance Program, Fannie Mae                  12 CFR 160.101, ‘‘Interagency Guidelines for Real      effective January 1, 2014. Refer to 78 FR 6621,
                                                    HomeStyle Renovation, and Freddie Mac                   Estate Lending Policies.’’                             January 30, 2013.
                                                                                                              6 Id.
                                                    Construction Conversion and Renovation                                                                            10 An example is the purchase of a recently

                                                    Mortgages.                                                7 Id.                                                rehabilitated property.



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                                                                                    Federal Register / Vol. 81, No. 118 / Monday, June 20, 2016 / Notices                                            40001

                                                    acceptable collateral. A program loan                   consider making program loans 12 and                   —there may be financial implications to
                                                    also should have an original loan                       describe how the program loans are                       the borrower if the borrower seeks to
                                                    balance of $200,000 or less and be                      intended to support revitalization efforts               sell the property after rehabilitation
                                                    originated under a program developed                    in the eligible community (e.g., how the                 and the sale price of such
                                                    pursuant to this bulletin.                              origination of program loans is expected                 rehabilitated property is less than the
                                                      For purposes of this bulletin                         to contribute to the normalization of a                  outstanding loan balance at the time
                                                      • ‘‘rehabilitation’’ means the repairs                distressed housing market).                              of such sale, and explain the
                                                    necessary to improve a property in                        • amount, and the duration, of the                     implications.
                                                                                                            bank’s financial commitment to the
                                                    substandard condition to a level                                                                                 • incentives that may be available to
                                                    consistent with applicable building                     program.
                                                                                                              • limitation on the aggregate level of               qualifying borrowers (e.g., assistance or
                                                    codes. A property is in ‘‘substandard                                                                          grants for down payments, fees, and
                                                    condition’’ when its present condition                  committed program loans as a
                                                                                                            percentage of tier 1 capital (as defined               closing costs; at or below market interest
                                                    endangers the health, safety, or well-                                                                         rates; or rewards for long-term
                                                    being of the occupant(s) such that it                   in 12 CFR 3.2), which should not exceed
                                                                                                            10 percent.                                            occupancy) and home buyer education
                                                    requires extensive repair for the                                                                              or other counseling that may be
                                                                                                              • characteristics of program loans,
                                                    property to be habitable.                                                                                      provided by or through the bank or its
                                                                                                            including loan structure, credit terms,
                                                      • a ‘‘purchase and rehabilitation’’                   interest rate and fees, and maximum                    third-party partners.
                                                    loan includes a loan that finances                      loan size, which should not exceed                       • monitoring and internal reporting
                                                    —the purchase of the property, plus the                 $200,000.                                              requirements sufficient to: (1) Assess
                                                      projected rehabilitation costs; or                      • underwriting standards and                         program performance and trends; and
                                                    —the amount of a purchase                               approval processes for program loans,                  (2) inform the board, or appropriately
                                                      consummated not more than six                         including appropriate documentation of                 designated committee, on at least a
                                                      months before the date of the bank’s                  relevant credit factors and document                   quarterly basis of the aggregate dollar
                                                      loan commitment, plus the projected                   retention standards.                                   amount, and percentage of tier 1 capital,
                                                      rehabilitation costs.                                   • real estate appraisal and evaluation               of committed program loans in relation
                                                      Program loans do not include home                     criteria applicable to program loans.13                to the program limitations.
                                                    equity loans, lines of credit, or                         • credit administration requirements
                                                                                                                                                                   D. Notice to the OCC
                                                    refinancing loans.                                      for program loans, including detailed
                                                                                                            guidelines regarding oversight of the                    The bank should notify the
                                                    B. Eligible Community                                   rehabilitation process, such as controls               appropriate OCC supervisory office in
                                                      An eligible community should be one                   over contracts, disbursements,                         writing at least 30 days before the bank
                                                    that has been officially targeted for                   inspections, and project management.                   intends to begin originating program
                                                    revitalization by a federal, state, or                    • compliance with all applicable laws                loans or to make any substantive change
                                                    municipal governmental entity or                        and regulations, including the ability-to-             to a previously submitted program.
                                                    agency, or by a government-designated                   repay and other requirements of 12 CFR                 Substantive changes may include the
                                                    entity such as a land bank.                             1026, anti-discrimination laws, and                    addition of a new eligible community,
                                                                                                            section 5 of the Federal Trade                         an increase in the financial commitment
                                                    C. Program Policies and Procedures                      Commission Act.                                        or duration of a program, or material
                                                      Existing regulations and guidelines                     • content, form, and timing of                       changes to program loan characteristics
                                                    require that each bank adopt and                        notice(s) the bank will provide in                     or underwriting standards. Such notice
                                                    maintain a general lending policy that                  connection with program loans to                       should include
                                                    establishes appropriate limits and                      clearly inform the borrower that                         • the date the bank’s board (or
                                                    standards for extensions of credit that                 —the market value of a property                        appropriately designated committee)
                                                    are secured by liens on or interests in                   securing a higher LTV loan is less                   approved the program policies and
                                                    real estate or that finance building                      than the loan amount at origination.                 procedures.
                                                    construction or other improvements.11                   —the market value of a rehabilitated                     • a copy of the program policies and
                                                    In addition to the general lending                        property likely will be less than the                procedures.
                                                    policies developed pursuant to existing                   original loan amount upon
                                                                                                                                                                   II. OCC Supervisory Considerations
                                                    regulations and guidelines, banks                         completion of the rehabilitation.
                                                                                                            —the market value may continue to be                   A. Supervision of Individual Banks
                                                    should have specific policies and
                                                                                                              less than the original loan amount
                                                    procedures for program loans that are                                                                            After receiving the bank’s notice to
                                                                                                              thereafter and for the duration of the
                                                    approved by the board of directors, or                                                                         the OCC, examiners will evaluate the
                                                                                                              loan.
                                                    an appropriately designated committee,                                                                         bank’s program to assess whether it is
                                                    and that address loan portfolio                            12 Banks should retain documentation indicating:
                                                                                                                                                                   consistent with safe and sound lending
                                                    management, underwriting, and other                     (1) The eligible community is one targeted for         practices and the guidelines outlined in
                                                    relevant considerations. These policies                 revitalization by a government entity or agency; (2)   this bulletin. Examiners’ assessment
                                                    and procedures should include                           the specific revitalization criteria used by the       will include reviewing the
                                                                                                            government entity or agency; and (3) the type of
                                                    provisions that address the                             financing and other support, if any, that the
                                                                                                                                                                     • characteristics of program loans and
                                                      • defined geographies of an eligible                  governmental entity or agency provides to the          incentives, if available, to qualifying
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                                                    community where the bank will                           community.                                             borrowers.
                                                                                                               13 For all mortgage loan transactions based on an
                                                                                                                                                                     • standards for the underwriting,
                                                                                                            appraisal, banks should select and engage
                                                       11 For national banks, refer to 12 CFR 34, ‘‘Real
                                                                                                            appraisers with local market competency in valuing
                                                                                                                                                                   collateral review, credit administration,
                                                    Estate Lending and Appraisals,’’ appendix A to          the property securing a program loan. Similarly,       and approval of program loans.
                                                    subpart D, ‘‘Interagency Guidelines for Real Estate     any evaluation, if applicable, should be credible        • borrower notice(s).
                                                    Lending Policies.’’ For federal savings associations,   and consistent with safe and sound banking               • monitoring and reporting
                                                    refer to 12 CFR 160.101, ‘‘Real estate lending          practices. Given the unique underwriting
                                                    standards,’’ appendix to 12 CFR 160.101,                considerations, banks should not use automated
                                                                                                                                                                   procedures for program loans.
                                                    ‘‘Interagency Guidelines for Real Estate Lending        valuation models in connection with these                • process for ensuring compliance
                                                    Policies.’’                                             programs.                                              with all applicable laws and regulations.


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                                                    40002                          Federal Register / Vol. 81, No. 118 / Monday, June 20, 2016 / Notices

                                                      • financial commitment (as a dollar                   compliance with applicable laws                        communities. The OCC’s evaluations
                                                    amount and a percentage of tier 1                       pertaining to loans in delinquency.14                  will consider, among other matters, the
                                                    capital) and defined geographies for                       • bank’s internal reporting of program              effect such programs have had on the
                                                    originating program loans.                              performance and trends.                                housing markets and other economic
                                                      In connection with the evaluation of                     • process to establish and document                 indicators in eligible communities
                                                                                                            community development consideration,                   targeted by the programs, whether the
                                                    the bank’s program, examiners may
                                                                                                            if applicable, under the Community                     programs adequately control the various
                                                    request clarification or changes to the
                                                                                                            Reinvestment Act.                                      risks, and the general performance of
                                                    bank’s policies and procedures before                      Banks with programs that are found to               program loans. The OCC recognizes that
                                                    the bank’s first origination of a program               have unsatisfactory governance or                      it may take multiple years before
                                                    loan or the bank’s making of any                        controls will be expected to undertake                 revitalization efforts in eligible
                                                    substantive change to a previously                      corrective action in order to continue                 communities result in material changes.
                                                    submitted program. Such requests may                    the lending activity in a safe and sound                  Based on these evaluations, the OCC
                                                    include clarification or changes to                     manner. In addition, examiners may                     may amend or rescind this bulletin. Any
                                                    ensure the program is consistent with                   review individual program loans to                     decision by the OCC to materially
                                                    safe and sound lending practices.                       assess asset quality, credit risk, and                 amend or rescind this bulletin will
                                                      Examiners also will monitor and                       consumer compliance.                                   apply only to the origination of new
                                                    evaluate the bank’s program during                                                                             higher LTV loans. Any loans originated
                                                                                                            B. Overall Evaluation of Programs
                                                    scheduled supervisory activities.                                                                              that are consistent with this bulletin, or
                                                    Examiner evaluations will include                         At least annually, the OCC will                      any subsequent revisions thereof, when
                                                    consideration of the                                    evaluate the extent to which banks’                    made will not be deemed to be unsafe
                                                                                                            programs on the whole are contributing                 and unsound solely because of any
                                                      • bank’s governance of the program                    to the revitalization efforts in eligible              measurable amendment or rescission of
                                                    and whether the program adequately                                                                             this bulletin.
                                                    manages the various risks.                                14 Applicable laws may include (1) Regulation X,
                                                                                                                                                                     Dated: June 14, 2016.
                                                      • performance of program loans and                    12 CFR 1024, which provides mortgage servicing
                                                                                                                                                                   Stuart E. Feldstein,
                                                                                                            standards, including early intervention
                                                    whether delinquent program loans are                    requirements and loss mitigation procedures and (2)    Director, Legislative and Regulatory Activities
                                                    managed and accurately classified                       Regulation Z, 12 CFR 1026, which establishes           Division.
                                                    consistent with the OCC’s existing                      requirements for including delinquency-related
                                                                                                            information on the periodic statements required for    [FR Doc. 2016–14472 Filed 6–17–16; 8:45 am]
                                                    guidance on delinquent loans and in                     residential mortgage loans.                            BILLING CODE 4810–33–P
asabaliauskas on DSK3SPTVN1PROD with NOTICES




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Document Created: 2016-06-18 00:09:26
Document Modified: 2016-06-18 00:09:26
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
ActionNotice and request for comment.
DatesYou should submit written comments by July 20, 2016.
ContactShaquita Merritt, Clearance Officer, (202) 649-5490, or for persons who are deaf or hard of hearing, TTY, (202) 649-5597, Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, 400 7th Street SW., Washington, DC 20219.
FR Citation81 FR 39998 

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