Is there a list of subjects that banks, savings banks and savings associations must include in their policies and procedures?
Yes, the guidance requires all financial institutions, including banks, savings banks and savings associations, to focus on the following subjects and apply the relevant ones to their existing policies and procedures: • Help borrowers understand ARM risks, including: – Low initial payment; – High or unlimited reset rate caps; – Low or no documentation loans; – Problems of frequent refinancing; – Risk layering; – Simultaneous second lien loans; – Prepayment penalties; – FDIC prohibited practices (banks, savings banks and savings associations); – OTS prohibited practices (savings associations). • Understand portfolio and risk management practices, including: – Relationship between subprime lending and predatory lending; – Risks of loans based on foreclosed or liquidation value; – Problem of loan “flipping”; – Fraud detection; – Use of qualifying standards; – Maintenance of appropriate capital levels; – Use of appropriate allowance for loan and lease loss levels; – Risks of stated income
