November 16, 2006
Comptroller of the Currency Visits Pittsburgh Community Reinvestment Projects
PITTSBURGH — Comptroller of the Currency John C. Dugan highlighted the success of national bank investments under the Community Reinvestment Act during a visit to Pittsburgh today.
During the trip, the Comptroller met with the Pittsburgh Community Reinvestment Group and bankers and toured area reinvestment projects that were funded through the public welfare investment authority, known as Part 24.
Pittsburgh Community Reinvestment Group members "have helped bring more than $4 billion of investment to Pittsburgh’s low-income neighborhoods and in the process, proven that neighborhood organizations can have lasting and mutually beneficial relationships with bankers and other community stakeholders," Mr. Dugan said.
These investments have delivered essential services to community residents by providing affordable housing, homebuyer education, and home rehabilitation financing.
This fall the Part 24 investment limit was increased from 10 to 15 percent of a bank’s capital and surplus, which can generate an additional $30 billion in private investments to strengthen America’s communities.
During remarks, the Comptroller also highlighted federal regulators’ guidance to address risks associated with nontraditional mortgages and the increasing trend of marketing these products to subprime borrowers who are least able to handle payment shock that occurs with these loans. These payment deferral products – interest-only and payment-option mortgages – allow lower initial payments in exchange for much higher payments later.
With payment-option products where customers opt to pay less than the periodic interest due, the unpaid interest is added to the loan amount causing borrowers’ debt to grow with each minimum payment.
"The guidance makes clear that a bank’s underwriting of a nontraditional mortgage must consider the borrower’s ability to pay principal and interest as if the mortgage were a traditional amortizing loan. That is, a borrower should not be able to qualify for a nontraditional mortgage with lower initial monthly payments unless the borrower could also qualify for a traditional amortizing loan of the same amount with higher monthly payments," said Mr. Dugan. The guidance also requires that lenders provide balanced information about the benefits and risks of such products.
According to the Comptroller, the guidance is the "start of a longer and larger process" that needs to apply similar standards to mortgage lenders not affiliated with banks.
"I am very encouraged by the model nontraditional mortgage lending guidance that was released this week by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators," Comptroller Dugan said. "This model guidance mirrors the guidance issued by the Federal banking agencies, and these regulatory organizations are strongly encouraging their adoption in every state."