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Connecticut Department of Banking
Adopts Statement on Subprime Mortgage Lending

July 23, 2007

Banking Commissioner Howard F. Pitkin today announced the adoption of regulatory guidance covering underwriting standards, management practices, and consumer protection provisions that mortgage originators should follow when marketing and selling certain adjustable-rate mortgage products to subprime borrowers.

The Statement on Subprime Mortgage Lending (Subprime Statement) was developed by the Conference of State Bank Supervisors (CSBS), the American Association of Residential Mortgage Regulators (AARMR), and the National Association of Consumer Credit Administrators (NACCA) in response to the federal financial regulatory agencies’ Statement on Subprime Mortgage Lending that was released on June 29, 2007.  CSBS, AARMR, and NACCA developed the Subprime Statement to apply to residential mortgage providers not regulated by the federal financial regulatory agencies.

“This statement addresses the concerns we have identified in the subprime mortgage markets,” stated Commissioner Pitkin.  “We believe a coordinated effort among federal and state regulatory agencies is necessary to provide consistent and effective policy and overall supervision of the mortgage industry.” 

The CSBS/AARMR/NACCA guidance substantially mirrors the federal interagency statement agreed upon by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the National Credit Union Administration, and supported by the FFIEC’s State Liaison Committee. 

However, the state mortgage regulatory agencies have modified the statement to address issues particular to nondepository residential mortgage providers. These providers are generally required to be licensed and regulated by the states.

In conjunction with the 2006 Interagency Guidance on Nontraditional Mortgage Product Risks, the Subprime Statement offers sound underwriting and consumer protection principles that institutions and all residential mortgage providers should consider when making mortgage loans.

The State of Connecticut is currently examining the issue of subprime lending in a task force convened by Governor M. Jodi Rell.  This task force is chaired by Commissioner Pitkin and Gary King, President of the Connecticut Housing Finance Authority and has been meeting in an effort to develop as solution to the subprime problem.

Beyond the Statement on Subprime Mortgage Lending, state regulators also plan to issue Examination Guidance for state supervisors to use in evaluating a state licensed mortgage companies’ compliance with the new requirements on lending to subprime borrowers.

Statement on Subprime Mortgage Lending (pdf file, 48KB)