John C. Dugan, the comptroller of the currency, spoke on Wednesday to members of the not for profit housing assistance group
Neighborhood Housing Services in New York. The top federal banking regulator spoke on the topic of the foreclosure and subprime loan problems plaguing the mortgage and housing sector currently, and suggested that guidance is now being written for subprime lenders which should deal with the widespread use of state-income loans. In his commentary, Dugan stated he believed that the misuse of these types of loans has helped drive foreclosures in the subprime sector.
He referred to data that the Mortgage Asset Research Institute provided, showing 90% of borrowers reporting incomes higher than what they reported to the IRS. Add to income overstatement, the fact that lenders and borrowers are complicitly counting on the fact that homes will appreciate in value. This, he said became “the perfect petri dish to incubate the widespread practice of stated income loans.”
Dugan’s organization, the OCC, is one of a few federal bank regulators who are trying to draft guidance to improve the subprime underwriting process.
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