Industry News

Relaxed lending standards concern regulators

Retail banks face increased risk

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Comptroller of the Currency John C. Dugan is voicing concerns that many retail lenders have relaxed their underwriting standards, offering borrowers more home equity loans with high loan-to-value ratios and longer interest-only periods, and backing piggyback loans to avoid mortgage insurance requirements. A new survey of underwriting practices at 73 of the nation's largest banks by the Office of the Comptroller showed 26 percent eased their standards for residential mortgage lending in the last 12 months. The banks granted an increased number of nontraditional home equity loans, including interest-only and payment-option adjustable-rate mortgages, lowered scorecard cutoffs, and offered more piggyback loans to avoid mortgage insurance requirements. Banks, citing the need to remain competitive, eased standards for home equity lending "considerably further than indirect consumer lending," the survey found. The survey of underwriting practices included banks that hold about 90 percent ...