Misconstrued: The OCC's Curry said regulatory guidelines limiting residential mortgages to a 90% loan-to-value ratio "do not create an ironclad ban on lending above that limit, even if there are no credit enhancements."
Misconstrued: The OCC's Curry said regulatory guidelines limiting residential mortgages to a 90% loan-to-value ratio "do not create an ironclad ban on lending above that limit, even if there are no credit enhancements." Comptroller of the Currency Thomas Curry (Bloomberg News)

WASHINGTON — Comptroller of the Currency Thomas Curry on Wednesday said banks can consider making mortgages exceeding supervisory limits on loan-to-value ratios if they meet other criteria, to spur revitalization in urban areas hurt by the housing crisis.

Speaking in Cleveland, a city that was hit hard by foreclosures, Curry pointed to examples where banks have supported revitalization efforts. But with foreclosed and abandoned properties still elevated in many communities, he said getting a loan is a challenge for prospective buyers of properties slated for rehabilitation.

"Some bankers are understandably hesitant about making mortgage loans in cities that skeptics have written off," Curry said in remarks prepared for a speech to the City Club of Cleveland. "Lack of access to credit is a key issue, and it is one that arises in part from certain misconceptions about supervisory standards and expectations."

He acknowledged the effect of recent enhanced supervisory expectations dealing with underwriting, management of loan portfolios and appraisals. Interagency lending guidelines also instruct banks to require no less than a 90% loan-to-value ratio on residential mortgages unless loans meet other criteria.

"In some markets, and particularly for low-value properties in hard-hit communities, we have heard that these supervisory policies might present challenges in the lending process," Curry said.

But the OCC, he added, has informed banks that the 90% LTV limit does not "create an ironclad ban on lending above that limit, even if there are no credit enhancements."

"Indeed, the standards acknowledge that lending above that limit in excess of supervisory loan-to-value expectations can be consistent with safe and sound lending practices in specified circumstances, provided that banks maintain appropriate controls and otherwise comply with applicable law, regulation, guidance, and the bank's own policies and procedures," Curry said.

" 'Supervisory loan-to-value exception' loans may be a means of addressing circumstances facing borrowers and lenders in rehabilitating housing stock in communities that have suffered significant declines and have been targeted for revitalization. But we also must make sure that when circumstances justify these loans, the interests of both lenders and borrowers are well protected."

Curry said he has asked OCC staff to explore solutions for encouraging urban rehabilitation through efforts that may include loan-to-value exception loans. He said certain principles associated with making such loans prudently include bank policies that determine the geographic region, estimated financial commitment and duration of a high-LTV loan program. Banks may also adopt specific underwriting and compliance procedures for such loans, as well monitoring to assess their performance.

"While we have not yet resolved all the many questions these loans present from a supervisory standpoint, the OCC believes that it is possible for loan-to-value exception loans to be made in a safe and sound manner if appropriate parameters are observed," Curry said.

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