Comptroller Rebukes Non-Bank Lenders on Foreclosures Practices

Comptroller John Dugan is challenging non-bank lenders and servicers to step up their efforts to help delinquent subprime borrowers and prevent foreclosures.

The top supervisor of national banks noted that banks have been very active in working with nonprofit organizations to reach delinquent borrowers and in funding foreclosure prevention programs.

Even though national banks played a relatively smaller role in the subprime market than other lenders, they have "recognized the importance of these efforts," Mr. Dugan said in speech at a NeighborWorks conference on foreclosure prevention.

"I wish the same were true for more of the non-federally regulated lenders and servicers that have fueled the rapid growth of the subprime market - and profited handsomely from it. It could make a real difference if these institutions made similar contributions to assist borrowers to avoid foreclosures wherever feasible," Mr. Dugan said.

The comptroller made his remarks after unveiling new public service advertisements that urge delinquent borrowers to contact their servicers.

He noted several national banks helped established the NeighborWorks Center for Foreclosure Solutions back in April 2006.

"The center and its foreclosure prevention coalitions have helped many borrowers negotiate loan workouts with lenders," Mr. Dugan said.

Bank of America, National City Mortgage Co., Washington Mutual, New Century Financial Corp. and Option One Mortgage were among the original 12 supporters of the Center for Foreclosure Solutions.

New Century was a large subprime lender that went into bankruptcy earlier this year.

The Office of the Comptroller of the Currency estimates that national banks originated around 10% of all subprime loans in 2006, or $65 billion in B&C loans.

Mr. Dugan noted that national banks have a "huge chunk of the mortgage market" and it is difficult to determine the amount of subprime originations.

The comptroller noted, however, that subprime loans originated by national banks have lower average default rates than loans originated outside the banking system. He attributed this performance partly to OCC regulation and Community Reinvestment Act requirements.

Federally chartered thrifts hold about $30.8 billion in subprime mortgages in portfolio, according to the Office of Thrift Supervision. These B&C loans represent only 4% of the $772 billion in single-family loans held by thrifts.

But OTS officials say they do not collect data that identify subprime originations and declined to provide an estimate of that origination activity.

OTS recently took a supervisory action against AIG Federal Savings Bank, Wilmington, Del., for acting as subprime mortgage conduit for two affiliates - American General Finance, Evansville, Ind., and Wilmington Finance, Plymouth Meeting, Pa.

The small $1.2-billion-asset thrift originated $15.6 billion in one-to-four family loans in 2005 according to Home Mortgage Disclosure Act data, and $10 billion of those loans were classified as higher priced, which generally implies subprime loans.

As part of the supervisory agreement, the American International Group subsidiaries agreed to set up a $128 million rescue fund to restructure loans for borrowers facing foreclosure and reimbursed others who were charged high broker and lender fees. The AIG units recently agreed to increase the size of the rescue fund by $35 million. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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