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Residential Department: Q&A: Office of the Comptroller of the Currency: May 2016


Q&A: Office of the Comptroller of the Currency

Richard B. Taft, Deputy comptroller for credit risk, Office of the Comptroller of the Currency

Mortgage underwriting is not a concern

Each year, the Office of the Comptroller of the Currency (OCC) — part of the U.S. Department of the Treasury — releases its Survey of Credit Underwriting Practices. Through examiner assessments of 95 banks, the OCC is able to look at credit-risk and underwriting trends for a variety of loan types, including residential mortgages.

The OCC’s most recent study, released last year, found that underwriting standards have loosened each of the last three years, most notably in fields such as commercial real estate and credit card lending. The survey found that 13 percent of banks loosened their underwriting standards in residential real estate lending in 2015, in line with results from the prior several years and well below the figures reported in years leading up to the housing crisis and Great Recession.

In 2015, 6 percent of banks tightened underwriting standards and 81 percent reported that standards were unchanged in residential real estate lending. Richard B. Taft, deputy comptroller for credit risk at the OCC, spoke with Scotsman Guide about underwriting trends in the residential real estate industry.

What trends are you seeing in underwriting, particularly in residential real estate?

The most recent Survey of Credit Underwriting Practices that we sent out did identify the third consecutive year of material loosening in underwriting standards. That being said, one of the areas where we did not see material loosening of underwriting standards was in residential mortgage lending.

… Almost all of our examiners were reporting back that underwriting standards have remained stable. I would say that mirrors our assessment of credit risk in the residential mortgage area, also. Credit risk, for the past three to four years, has either been declining or remaining stable. That is a direct result of the pullback in lending following the [housing] crisis.

Over the past four years, the study shows 10 to 13 percent of banks annually are loosening their underwriting standards. Should those figures be considered normal, or do market conditions over the past decade make that difficult to determine?

That’s tough to say, because we don’t get into the nitty-gritty about who exactly is [reporting those figures]. We have examiners who change from year to year, so we may have different examiners that are providing the response. You don’t know whether it’s 10 percent of new banks, or if it’s the same 10 percent of banks that have just been more lax with underwriting standards. So that’s why we tend to do things from a broad perspective in this report.

… I look at the overall thing it’s telling me, and it’s telling me that you don’t have a high number of examiners that are telling us that a large number of [banking] institutions are loosening underwriting standards. That’s my takeaway.

In what industries are underwriting standards loosening the most?

Twice a year, the OCC issues a document called the Semiannual Risk Perspective. That document outlines what we think to be the highest risks that we’re monitoring at this point in time. Clearly, the loosening of commercial real estate underwriting standards and automobile underwriting standards are in there. We also address things dealing with the oil and gas industry and the impact that can have on our institutions. But first and foremost, overall, there is just a general loosening of underwriting standards across multiple products.

I would add that we would expect a loosening at this point in time in the credit cycle, so we don’t necessarily call the loosening bad. It’s an activity that’s occurring, and it presents its own risks, and so that’s the way we do it. With loosening, it can be loosening on price, loosening on terms. There are various forms of loosening, and what we aim to ensure is that our banks understand it and still maintain underwriting within their credit appetite.

Why do you say this loosening was expected?

It’s the credit cycle, and the current interest-rate environment. The one thing that we have tried to increase our communications on is that the worst loans are made during the best of times. In many of the credit products, these are the best of times. That being said, residential real estate has gone through a hard time the last few years, so that wouldn’t fit into that standard assessment.

Richard B. Taft is the deputy comptroller for credit risk at the Office of the Comptroller of the Currency (OCC). In this role, he serves as a principal adviser on credit risks facing the banking system and oversees the agency’s commercial and retail credit-policy units. Taft assumed these duties in May 2015. Prior to this role, Taft held a variety of technical and managerial positions with increasing responsibility, including serving as examiner in charge of PNC Bank NA from 2012 to 2015, where he managed a team of examiners covering all disciplines, products and aspects of the bank.


Rob Crow was online content editor for Scotsman Guide Media. For questions regarding this article, e-mail

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