The FDIC today issued a report on ways mortgage lenders can responsibly and profitably expand the availability of home loans to low- and moderate-income (LMI) borrowers and still make a profit. The report -- a summary of best practices discussed by participants at an FDIC forum in July on problems in the mortgage market -- said that basic, traditionally underwritten, 30-year fixed-rate mortgages are the most suitable home loan for most LMI borrowers.
"As bankers increase mortgage lending, and do it the old-fashioned way with down payments, long-term fixed rates, documented income and the like, homeownership will once again be the surest way for building wealth and re-energizing neighborhoods," said FDIC Chairman Sheila C. Bair in commenting on the report.
The FDIC's July 8th Forum on Mortgage Lending for LMI Households featured speeches by Treasury Secretary Henry M. Paulson, Jr., Federal Reserve Board Chairman Ben S. Bernanke, and JPMorgan Chase Chairman and CEO James Dimon.
The FDIC report also said that lenders can profitably make fixed-rate mortgages and other loan products more widely available to the LMI market by responsibly adding flexible and innovative features, such as extending repayment schedules, expanding alternative underwriting processes for consumers with limited credit history, and creating innovative insurance products to address temporary income disruptions.
Other best practices discussed in the report involve improving incentives and compensation throughout the mortgage process, increasing transparency and due diligence by providing more information about individual loan terms and pools of loans, and fostering public and private partnerships to facilitate LMI mortgage lending.
The report on best practices was issued through an FDIC Financial Institution Letter distributed to insured institutions but is also intended for the benefit of other mortgage professionals. The FDIC issued the findings for informational purposes only and not as supervisory guidance to FDIC-supervised banks.
The complete Financial Institution Letter with the summary of best practices is available on the FDIC Web site at http://www.fdic.gov/news/news/financial/2008/fil08088.html. To see videos from the July 8 forum, including speeches and panel discussions, go to http://www.vodium.com/goto/fdic/advisorycommittee.asp.
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Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation's banking system. The FDIC insures deposits at the nation's 8,451 banks and savings associations and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars – insured financial institutions fund its operations.
FDIC press releases and other information are available on the Internet at www.fdic.gov, by subscription electronically (go to www.fdic.gov/about/subscriptions/index.html) and may also be obtained through the FDIC's Public Information Center (877-275-3342 or 703-562-2200). PR-75-2008