OCC to ABA: Maintain High Mortgage Standards

National banks should have high standards for underwriting residential mortgages even if they are selling the loans to Wall Street conduits or other investors, according to the comptroller of the currency.National banks "simply cannot cede underwriting standards" to third-party purchasers of mortgages, Comptroller John Dugan told the American Bankers Association at its annual convention in San Diego. He warned that examiners expect banks to adhere to regulatory guidance in making subprime and nontraditional mortgages, including loans originated for sale. There can be some deviation, "but only so long as the risk differences are manageable" and there is a "credible prospect of repayment," Mr. Dugan said. The comptroller noted that national banks avoided significant losses on subprime loans because they sold their weaker credits in the secondary market. But he stressed that banks are not "primarily responsible for the worst abuses and losses arising from subprime credit." The ABA can be found on the Web at http://www.aba.com.