Federal Register / Vol. 72, No. 45 / Thursday, March 8, 2007 / Notices 10533 

Dated: March 2, 2007. 

Bryant L. VanBrakle, 

Secretary. 

[FR Doc. E7–4102 Filed 3–7–07; 8:45 am] 

BILLING CODE 6730–01–P 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

[Docket No. OCC–2007–0005] 

FEDERAL RESERVE SYSTEM 

[Docket No. OP–1278] 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

DEPARTMENT OF THE TREASURY 

Office of Thrift Supervision 

[No. 2007–09] 

NATIONAL CREDIT UNION 

ADMINISTRATION 

Proposed Statement on Subprime 

Mortgage Lending 

AGENCIES: Office of the Comptroller of 

the Currency, Treasury (OCC); Board of 

Governors of the Federal Reserve 

System (Board); Federal Deposit 

Insurance Corporation (FDIC); Office of 

Thrift Supervision, Treasury (OTS); and 

National Credit Union Administration 

(NCUA). 

ACTION: Notice with request for 

comment. 

SUMMARY: The OCC, Board, FDIC, OTS, 

and NCUA (the Agencies) request 

comment on this proposed Statement on 

Subprime Mortgage Lending. The 

proposed statement addresses emerging 

issues and questions relating to certain 

subprime mortgage lending practices, 

and it discusses risk management and 

consumer compliance processes, 

policies, and procedures that 

institutions should implement to 

respond to these concerns. 

DATES: Comments must be submitted on 

or before May 7, 2007. 

ADDRESSES: The Agencies will jointly 

review all of the comments submitted. 

Therefore, interested parties may send 

comments to any of the Agencies and 

need not send comments (or copies) to 

all of the Agencies. Please consider 

submitting your comments by e-mail or 

fax, since paper mail in the Washington 

area and at the Agencies is subject to 

delay. Interested parties are invited to 

submit comments to: 

OCC: You should include ‘‘OCC’’ and 

Docket Number OCC–2007–0005 in 

your comment. You may submit your 

comment by any of the following 

methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• OCC Web Site: http:// 

www.occ.treas.gov. Click on ‘‘Contact 

the OCC,’’ scroll down and click on 

‘‘Comments on Proposed Regulations.’’

• E-Mail Address: 

regs.comments@occ.treas.gov. 

• Fax: (202) 874–4448. 

• Mail: Office of the Comptroller of 

the Currency, 250 E Street, SW., Mail 

Stop 1–5, Washington, DC 20219. 

• Hand Delivery/Courier: 250 E 

Street, SW., Attn: Public Information 

Room, Mail Stop 1–5, Washington, DC 

20219. 

Instructions: In general, the OCC will 

enter all comments received into the 

docket without change, including any 

business or personal information that 

you provide. 

You may review comments and other 

related materials by any of the following 

methods: 

• Viewing Comments Personally: You 

may personally inspect and photocopy 

comments at the OCC’s Public 

Information Room, 250 E Street, SW., 

Washington, DC. You can make an 

appointment to inspect comments by 

calling (202) 874–5043. 

• Viewing Comments Electronically: 

You may request that we send you an 

electronic copy of comments via e-mail 

or mail you a CD–ROM containing 

electronic copies by contacting the OCC 

at regs.comments@occ.treas.gov. 

• Docket Information: You may also 

request available background 

documents and project summaries using 

the methods described above. 

Board: You may submit comments, 

identified by Docket No. OP–1278, by 

any of the following methods: 

• Agency Web site: http:// 

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: 

regs.comments@federalreserve.gov. 

Include the docket number (OP–1278) 

in the subject line of the message. 

• Fax: (202) 452–3819 or (202) 452–

3102. 

• Mail: Jennifer J. Johnson, Secretary, 

Board of Governors of the Federal 

Reserve System, 20th Street and 

Constitution Avenue, NW., Washington, 

DC 20551. 

All public comments are available 

from the Board’s Web site at http:// 

www.federalreserve.gov/generalinfo/ 

foia/ProposedRegs.cfm as submitted, 

unless modified for technical reasons. 

Accordingly, your comments will not be 

edited to remove any identifying or 

contact information. Public comments 

also may be viewed electronically or in 

paper form in Room MP–500 of the 

Board’s Martin Building (20th and C 

Streets, NW.) between 9 a.m. and 5 p.m. 

on weekdays. 

FDIC: You may submit comments by 

any of the following methods: 

• Agency Web Site: http:// 

www.fdic.gov/regulations/laws/federal. 

Follow instructions for submitting 

comments on the Agency Web Site. 

• E-mail: Comments@FDIC.gov. 

Include ‘‘Statement on Subprime 

Mortgage Lending’’ in the subject line of 

the message. 

• Mail: Robert E. Feldman, Executive 

Secretary, Attention: Comments, Federal 

Deposit Insurance Corporation, 550 17th 

Street, NW., Washington, DC 20429. 

• Hand Delivery/Courier: Guard 

station at the rear of the 550 17th Street 

Building (located on F Street) on 

business days between 7 a.m. and 5 p.m. 

(EST). 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

Public Inspection: All comments 

received will be posted without change 

to http://www.fdic.gov/regulations/laws/ 

federal including any personal 

information provided. Comments may 

be inspected and photocopied in the 

FDIC Public Information Center, 3501 

North Fairfax Drive, Room E–1002, 

Arlington, VA 22226, between 9 a.m. 

and 5 p.m. (EST) on business days. 

Paper copies of public comments may 

be ordered from the Public Information 

Center by telephone at (877) 275–3342 

or (703) 562–2200. 

OTS: You may submit comments, 

identified by docket number 2007–09, 

by any of the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail address: 

regs.comments@ots.treas.gov. Please 

include docket number 2007–09 in the 

subject line of the message and include 

your name and telephone number in the 

message. 

• Fax: (202) 906–6518. 

• Mail: Regulation Comments, Chief 

Counsel’s Office, Office of Thrift 

Supervision, 1700 G Street, NW., 

Washington, DC 20552, Attention: No. 

2007–XX. 

• Hand Delivery/Courier: Guard’s 

Desk, East Lobby Entrance, 1700 G 

Street, NW., from 9 a.m. to 4 p.m. on 

business days. Address envelope as 


sroberts on PROD1PC70 with NOTICES
10534 Federal Register / Vol. 72, No. 45 / Thursday, March 8, 2007 / Notices 

1The Agencies consist of the Board of Governors 

of the Federal Reserve System (the Board), the 

Federal Deposit Insurance Corporation (FDIC), the 

National Credit Union Administration (NCUA), the 

Office of the Comptroller of the Currency (OCC), 

and the Office of Thrift Supervision (OTS), 

collectively the Agencies. 

2The term ‘‘subprime’’ is defined in the 2001 

Expanded Guidance for Subprime Lending 

Programs. Federally insured credit unions should 

refer to LCU 04–CU–13—Specialized Lending 

Activities. 

3For example, ARMs known as ‘‘2/28’’ loans 

feature a fixed rate for two years and then adjust 

to a variable rate for the remaining 28 years. The 

spread between the initial fixed rate of interest and 

the fully indexed interest rate in effect at loan 

origination typically ranges from 300 to 600 basis 

points. 

4Payment shock refers to a significant increase in 

the amount of the monthly payment that occurs 

when the interest rate adjusts to a fully indexed 

basis. Products with a wide spread between the 

initial interest rate and the fully indexed interest 

rate that do not have payment caps or periodic 

interest rate caps, or that contain very high caps can 

produce significant payment shock. 

follows: Attention: Regulation 

Comments, Chief Counsel’s Office, 

Attention: No. 2007–09. 

Instructions: All submissions received 

must include the agency name and 

docket number for this proposed 

Statement. All comments received will 

be posted without change to the OTS 

Internet Site at http://www.ots.treas.gov/ 

pagehtml.cfm?catNumber=67&an=1, 

including any personal information 

provided. 

Docket: For access to the docket to 

read background documents or 

comments received, go to http:// 

www.ots.treas.gov/ 

pagehtml.cfm?catNumber=67&an=1. In 

addition, you may inspect comments at 

the OTS’s Public Reading Room, 1700 G 

Street, NW., by appointment. To make 

an appointment for access, call (202) 

906–5922, send an e-mail to 

public.info@ots.treas.gov, or send a 

facsimile transmission to (202) 906–

7755. (Prior notice identifying the 

materials you will be requesting will 

assist us in serving you.) We schedule 

appointments on business days between 

10 a.m. and 4 p.m. In most cases, 

appointments will be available the next 

business day following the date we 

receive a request. 

NCUA: You may submit comments by 

any of the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• NCUA Web site: http:// 

www.ncua.gov/ 

RegulationsOpinionsLaws/ 

proposed_regs/proposed_regs.html. 

Follow the instructions for submitting 

comments. 

• E-mail: Address to 

regcomments@ncua.gov. Include ‘‘[Your 

name] Comments on ‘‘ in the e-mail 

subject line. 

• Fax: (703) 518–6319. Use the 

subject line described above for e-mail. 

• Mail: Address to Mary Rupp, 

Secretary of the Board, National Credit 

Union Administration, 1775 Duke 

Street, Alexandria, Virginia 22314–

3428. 

• Hand Delivery/Courier: Same as 

mail address. 

FOR FURTHER INFORMATION CONTACT: 

OCC: Michael S. Bylsma, Director, 

Community and Consumer Law 

Division, (202) 874–5750 or Stephen 

Jackson, Director, Retail Credit Risk, 

(202) 874–5170. 

Board: Division of Banking 

Supervision and Regulation: Brian 

Valenti, Supervisory Financial Analyst, 

(202) 452–3575, Virginia Gibbs, Senior 

Supervisory Financial Analyst, (202) 

452–2521, or Sabeth Siddique, Assistant 

Director, (202) 452–3861; Division of 

Consumer and Community Affairs: 

Kathleen Ryan, Counsel, (202) 452–

3667, or Jamie Goodson, Attorney, (202) 

452–3667; or Legal Division: Stephanie 

Martin, Associate General Counsel, 

(202) 452–3198. Board of Governors of 

the Federal Reserve System, 20th Street 

and Constitution Avenue, NW., 

Washington, DC 20551. Users of 

Telecommunication Device for Deaf 

(TTD) only, call (202) 263–4869. 

FDIC: Suzy S. Gardner, Examination 

Specialist, (202) 898–3640, Division of 

Supervision and Consumer Protection; 

Richard Foley, Counsel, (202) 898–3784, 

Legal Division; or April Breslaw, Acting 

Associate Director, Compliance Policy & 

Exam Support Branch, (202) 898–6609, 

Division of Supervision and Consumer 

Protection. 

OTS: Tammy Stacy, Director of 

Consumer Regulation, Compliance and 

Consumer Protection Division, (202) 

906–6437; Glenn Gimble, Senior Project 

Manager, Compliance and Consumer 

Protection Division, (202) 906–7158, 

William Magrini, Senior Project 

Manager, Credit Risk, (202) 906–5744; 

or Teresa Luther, Economist, Credit 

Risk, (202) 906–6798. 

NCUA: Cory Phariss, Program Officer, 

Examination and Insurance, (703) 518–

6618. 

SUPPLEMENTARY INFORMATION: 

I. Background 

This proposed Statement on 

Subprime Mortgage Lending (Statement) 

discusses criteria and factors, including 

payment shock, that an institution 

should assess in determining a 

borrower’s ability to repay a subprime 

loan. The Statement also discusses 

consumer protection issues and 

practices, including reminders about 

some of the existing statutes, 

regulations, and guidance intended to 

protect consumers from unfair, 

deceptive, and other predatory 

practices. Finally, the Statement 

discusses the need for policies, 

procedures, and systems to assure that 

institutions’ subprime mortgage lending 

is conducted in a safe and sound 

manner. The Statement is contained in 

Section II, below. The Agencies 1

request comment on all aspects of the 

Statement, including, but not limited to, 

the specific questions that appear in 

Section III. 

II. Proposed Statement on Subprime 

Mortgage Lending 

The Agencies developed this 

Statement to address emerging issues 

and questions relating to certain 

subprime 2 mortgage lending practices. 

The Agencies are concerned that 

subprime borrowers may not fully 

understand the risks and consequences 

of obtaining certain adjustable-rate 

mortgage (ARM) products. In particular, 

the Agencies are concerned with ARM 

products marketed to subprime 

borrowers with the following 

characteristics: 

• Offering low initial payments based 

on a fixed introductory or ‘‘teaser’’ rate 

that expires after a short initial period 

then adjusts to a variable index rate plus 

a margin for the remaining term of the 

loan; 3

• Approving borrowers without 

considering appropriate documentation 

of their income; 

• Setting very high or no limits on 

how much the payment amount or the 

interest rate may increase (‘‘payment or 

rate caps’’) at reset periods, potentially 

causing a substantial increase in the 

monthly payment amount ‘‘payment 

shock’’; 4

• Containing product features likely 

to result in frequent refinancing to 

maintain an affordable monthly 

payment; 

• Including substantial prepayment 

penalties and/or prepayment penalties 

that extend beyond the initial interest 

rate adjustment period; and/or 

• Providing borrowers with 

inadequate information relative to 

product features, material loan terms 

and product risks, prepayment 

penalties, and the borrower’s obligations 

for property taxes and insurance. 

The consequences to subprime 

borrowers could include: Being unable 

to afford the monthly payments after the 

initial rate adjustment because of 

payment shock; experiencing difficulty 

in paying real estate taxes and 


sroberts on PROD1PC70 with NOTICES
Federal Register / Vol. 72, No. 45 / Thursday, March 8, 2007 / Notices 10535 

5Federally insured credit unions should refer to 

LCU 04–CU–13—Specialized Lending Activities. 

National banks should also refer to 12 CFR 34.3(b) 

and (c), as well as 12 CFR part 30, Appendix C. 

6As with the Interagency Guidance on 

Nontraditional Mortgage Product Risks, 71 FR 

58609 (October 4, 2006), this Statement applies to 

all banks and their subsidiaries, bank holding 

companies and their nonbank subsidiaries, savings 

associations and their subsidiaries, savings and loan 

holding companies and their subsidiaries, and 

credit unions. 

7The OCC, the Board, the OTS, and the FDIC 

enforce this provision under section 8 of the FDI 

Act. The OCC, Board, and FDIC also have issued 

supervisory guidance to the institutions under their 

respective jurisdictions concerning unfair or 

deceptive acts or practices. See OCC Advisory 

Letter 2002–3—Guidance on Unfair or Deceptive 

Acts or Practices, March 22, 2002 and 12 CFR part 

30, Appendix C; Joint Board and FDIC Guidance on 

Unfair or Deceptive Acts or Practices by StateChartered Banks, March 11, 2004. OTS has also 

issued a regulation that prohibits savings 

associations from using advertisements or other 

representations that are inaccurate or misrepresent 

the services or contracts offered (12 CFR 563.27). 

The NCUA prohibits federally insured credit unions 

from using any advertising or promotional material 

that is inaccurate, misleading, or deceptive in any 

way concerning its products, services, or financial 

condition (12 CFR 740.2). 8Refer to 12 CFR part 34, subpart D (OCC); 12 

CFR 208, subpart C (Board); 12 CFR part 365 (FDIC); 

12 CFR 560.100 and 12 CFR 560.101 (OTS); 12 CFR 

701.21 (NCUA). 9OTS Examination Handbook Section 212, 1–4 

Family Residential Mortgage Lending, also 

discusses borrower qualification standards. 

Federally Insured Credit Unions should refer to 

LCU 04–CU–13—Specialized Lending Activities. 

homeowners insurance that were not 

escrowed; incurring expensive 

refinancing fees frequently due to 

closing costs and prepayment penalties, 

especially if the prepayment penalty 

period extends beyond the rate 

adjustment date; and losing their home. 

The Agencies also are concerned about 

the elevated credit risk that is inherent 

in these products. 

The Agencies note that many of these 

concerns are addressed in existing 

interagency guidance. The most 

prominent are the 1993 Interagency 

Guidelines for Real Estate Lending (Real 

Estate Guidelines), the 1999 Interagency 

Guidance on Subprime Lending 

(Subprime Lending Guidance), and the 

2001 Expanded Guidance for Subprime 

Lending Programs (Expanded Subprime 

Guidance).5

While the 2006 Interagency Guidance 

on Nontraditional Mortgage Product 

Risks (NTM Guidance) may not 

explicitly pertain to products with the 

characteristics addressed in this 

Statement, it outlines prudent 

underwriting and consumer protection 

principles that institutions should also 

consider with regard to subprime 

mortgage lending. This Statement 

reiterates many of the principles 

addressed in existing guidance relative 

to prudent risk management practices 

and consumer protection laws.6

Risk Management Practices 

Predatory Lending Considerations 

Institutions marketing subprime 

mortgage loans should ensure that they 

do not engage in the type of predatory 

lending practices discussed in the 

Expanded Subprime Guidance. 

Typically, predatory lending involves at 

least one, and perhaps all three, of the 

following elements: 

• Making mortgage loans based 

predominantly on the foreclosure or 

liquidation value of a borrower’s 

collateral rather than on the borrower’s 

ability to repay the mortgage according 

to its terms; 

• Inducing a borrower to repeatedly 

refinance a loan in order to charge high 

points and fees each time the loan is 

refinanced (‘‘loan flipping’’); or 

• Engaging in fraud or deception to 

conceal the true nature of the mortgage 

loan obligation, or ancillary products, 

from an unsuspecting or 

unsophisticated borrower. 

Institutions marketing mortgage loans 

such as these carry an elevated risk that 

their conduct will violate Section 5 of 

the Federal Trade Commission Act (FTC 

Act), which prohibits unfair or 

deceptive acts or practices.7

Underwriting Standards 

Institutions should refer to the Real 

Estate Guidelines, which provide 

underwriting standards for all real estate 

loans.8 The Real Estate Guidelines state 

that prudently underwritten real estate 

loans should reflect all relevant credit 

factors, including the capacity of the 

borrower to adequately service the 

debt.9 The 2006 NTM Guidance details 

similar criteria for qualifying borrowers 

for products that may result in payment 

shock. 

Prudent qualifying standards 

recognize the potential effect of 

payment shock in evaluating a 

borrower’s ability to service debt. An 

institution’s analysis of a borrower’s 

repayment capacity should include an 

evaluation of the borrower’s ability to 

repay the debt by its final maturity at 

the fully indexed rate, assuming a fully 

amortizing repayment schedule. One 

widely accepted approach in the 

mortgage industry is to quantify a 

borrower’s repayment capacity by a 

debt-to-income (DTI) ratio. An 

institution’s DTI analysis should assess 

a borrower’s total monthly housingrelated payments (e.g., principal, 

interest, taxes, and insurance, or ‘‘PITI’’) 

as a percentage of gross monthly 

income. 

This assessment is particularly 

important if the institution relies upon 

reduced documentation or allows other 

forms of risk layering. Risk-layering 

features in a subprime mortgage loan 

may significantly increase the risks to 

both the institution and the borrower. 

Therefore, an institution should have 

clear policies governing the use of risklayered features, such as reduced 

documentation loans or simultaneoussecond lien mortgages. When risklayering features are combined with a 

mortgage loan, an institution should 

demonstrate the existence of effective 

mitigating factors that support the 

underwriting decision and the 

borrower’s repayment capacity. 

The higher a loan’s risk, either from 

loan features or borrower 

characteristics, the more important it is 

to verify the borrower’s income, assets, 

and liabilities. When underwriting 

higher risk loans, stated income and 

reduced documentation should be 

accepted only if there are mitigating 

factors that clearly minimize the need 

for direct verification of repayment 

capacity. For many borrowers, 

institutions should be able to readily 

document income using recent W–2 

statements, pay stubs or tax returns. A 

higher interest rate is not considered an 

acceptable mitigating factor. 

Consumer Protection Principles 

Fundamental consumer protection 

principles relevant to the underwriting 

and marketing of mortgage loans 

include: 

• Approving loans based on the 

borrower’s ability to repay the loan 

according to its terms, and 

• Providing information that enables 

consumers to understand material 

terms, costs, and risks of loan products 

at a time that will help the consumer 

select products and choose among 

payment options. 

When applying these principles to 

ARMs marketed to subprime borrowers 

described in this document, 

communications with consumers, 

including advertisements, oral 

statements, and promotional materials 

should provide clear and balanced 

information about the relative benefits 

and risks of the products. This 

information should be provided in a 

timely manner to assist consumers in 

the product selection process, not just 

upon submission of an application or at 

consummation of the loan. Institutions 

should not use such communications to 

steer consumers to these products to the 

exclusion of other products offered by 

the institution for which the consumer 

may qualify. 

Information provided to consumers 

should clearly explain the risk of 


sroberts on PROD1PC70 with NOTICES
10536 Federal Register / Vol. 72, No. 45 / Thursday, March 8, 2007 / Notices 

10To illustrate: A borrower earning $36,000 per 

year obtains a $200,000 ‘‘2/28’’ mortgage loan. The 

loan has a two-year introductory fixed interest rate 

of 7%, resulting in an initial payment of $1,331 and 

a 44% debt-to-income (DTI) ratio, based on 

principal and interest only; and would be higher 

after the inclusion of taxes and insurance. The 

spread is 6% over the six-month London Interbank 

Offered Rate (LIBOR), which is 5.5% at the time of 

loan origination. The fully indexed interest rate at 

origination of 11.5% (6% + 5.5%) would cause the 

borrower’s monthly payment to increase to $1,956 

(or 47%), a 65% DTI ratio, based on principal and 

interest only. 

11 Institutions generally can address these 

concerns most directly by requiring borrowers to 

escrow funds for real estate taxes and insurance. 

12Federal credit unions are prohibited from 

charging prepayment penalties. 12 CFR 701.21. 

payment shock 10 and the ramifications 

of prepayment penalties, balloon 

payments, and the lack of escrow for 

taxes and insurance, as applicable. The 

Agencies strongly encourage institutions 

that impose prepayment penalties to 

structure them in such a way that they 

do not extend beyond the initial reset 

period and, further, provide borrowers a 

sufficient window of time immediately 

prior to the reset date to refinance 

without penalty. 

Similarly, if borrowers do not 

understand that their monthly mortgage 

payments do not include taxes and 

insurance, and they have not budgeted 

for these essential homeownership 

expenses, they may be faced with the 

need for significant additional funds on 

short notice.11 Therefore, mortgage 

product descriptions and 

advertisements should provide clear, 

detailed information about all of the 

costs, terms, features, and risks of the 

loan to the borrower. Consumers should 

be informed of: 

• Payment Shock. Potential payment 

increases, including how the new 

payment will be calculated when the 

introductory fixed rate expires. 

• Prepayment Penalties. The 

existence of any prepayment penalty, 

how it will be calculated, and when it 

may be imposed.12

• Balloon Payments. The existence of 

any balloon payment. 

• Cost of Reduced Documentation 

Loans. Whether there is a pricing 

premium attached to a reduced 

documentation or stated income 

program. 

• Responsibility for Taxes and 

Insurance. The requirement to make 

payments for real estate taxes and 

insurance in addition to their loan 

payments, if not escrowed, and the fact 

that taxes and insurance costs can be 

substantial. 

Control Systems 

Institutions should develop strong 

control systems to monitor whether 

actual practices are consistent with their 

policies and procedures. Systems 

should address compliance and 

consumer information concerns, as well 

as safety and soundness, and encompass 

both institution personnel and 

applicable third parties, such as 

mortgage brokers or correspondents. 

Important controls include 

establishing appropriate criteria for 

hiring and training loan personnel, 

entering into and maintaining 

relationships with third parties, and 

conducting initial and ongoing due 

diligence with third parties. Institutions 

also should design compensation 

programs that avoid providing 

incentives for originations inconsistent 

with sound underwriting and consumer 

protection principles, and that do not 

steer consumers to these products to the 

exclusion of other products for which 

the consumer may qualify. 

Institutions should have procedures 

and systems in place to monitor 

compliance with appropriate laws and 

regulations, applicable third-party 

agreements and internal policies. An 

institution’s controls also should 

include appropriate corrective actions 

in the event of failure to comply with 

applicable laws, regulations, third-party 

agreements or internal policies. In 

addition, institutions should initiate 

procedures to review consumer 

complaints to identify potential 

compliance problems or other negative 

trends. 

Supervisory Review 

The Agencies will carefully scrutinize 

risk management and consumer 

compliance processes, policies, and 

procedures at regularly scheduled 

examinations. Institutions that do not 

adequately manage these functions will 

be asked to take remedial action. The 

Agencies will take action against 

institutions that fail to implement or 

adhere to safe and sound standards, 

exhibit predatory lending practices, or 

violate consumer protection laws, such 

as the Federal Trade Commission Act’s 

prohibition against unfair or deceptive 

practices or the fair lending laws. 

III. Request for Comment 

The Agencies recognize that the 

structural evolution of subprime 

mortgage lending in recent years has 

introduced some products that are 

intended at their outset to be temporary 

credit accommodations in anticipation 

of early sale or refinancing, rather than 

longer-term amortizing accounts. Such 

loans typically involve terms that 

exceed the borrower’s ability to service 

the debt without refinancing or selling 

the property. The motivations for these 

arrangements vary. They may include 

financing in anticipation of the 

borrower’s intended temporary 

residency, expected future earnings 

growth, or need for a period of ‘‘credit 

repair.’’ Because of this fundamental 

shift in the purpose and actual 

repayment expectations of such loan 

programs, the Agencies are particularly 

interested in public comment on the 

following specific questions: 

1. The proposed qualification 

standards are likely to result in fewer 

borrowers qualifying for the type of 

subprime loans addressed in this 

Statement, with no guarantee that such 

borrowers will qualify for alternative 

loans in the same amount. Do such 

loans always present inappropriate risks 

to lenders or borrowers that should be 

discouraged, or alternatively, when and 

under what circumstances are they 

appropriate? 

2. Will the proposed Statement 

unduly restrict the ability of existing 

subprime borrowers to refinance their 

loans and avoid payment shock? The 

Agencies also are specifically interested 

in the availability of mortgage products 

that would not present the risk of 

payment shock. 

3. Should the principles of this 

proposed Statement be applied beyond 

the subprime ARM market? 

4. We seek comment on the practice 

of institutions that limit prepayment 

penalties to the initial fixed rate period. 

Additionally, we seek comment on how 

this practice, if adopted, would assist 

consumers and impact institutions, by 

providing borrowers with a timely 

opportunity to determine appropriate 

actions relating to their mortgages. We 

also seek comment on whether an 

institution’s limiting of the expiration of 

prepayment penalties such that they 

occur within the final 90 days of the 

fixed rate period is a practice that would 

help meet borrower needs. 

In addition to the foregoing questions, 

the Agencies request comment on all 

other aspects of the proposed Statement. 

Dated: February 28, 2007. 

John C. Dugan, 

Comptroller of the Currency. 

By order of the Board of Governors of the 

Federal Reserve System, March 2, 2007. 

Jennifer J. Johnson, 

Secretary of the Board. 

Dated at Washington, DC, the 28th day of 

February, 2007. 

By order of the Federal Deposit Insurance 

Corporation. 

Robert E. Feldman, 

Executive Secretary. 

Dated: February 28, 2007. 


sroberts on PROD1PC70 with NOTICES
Federal Register / Vol. 72, No. 45 / Thursday, March 8, 2007 / Notices 10537 

By the Office of Thrift Supervision. 

John M. Reich, 

Director. 

By the National Credit Union 

Administration on February 28, 2007. 

JoAnn M. Johnson, 

Chairman. 

[FR Doc. 07–1083 Filed 3–7–07; 8:45 am] 

BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P; 

6720–01–P; 7535–01–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

Privacy Act of 1974; Retraction of a 

Modified System of Records 

AGENCY: Department of Health and 

Human Services (HHS), Centers for 

Medicare & Medicaid Services (CMS). 

ACTION: Notice of Retraction of a 

Modified System of Records. 

SUMMARY: The Centers for Medicare & 

Medicaid Services CMS inadvertently 

published a modification to its existing 

system of records titled ‘‘Medicare Drug 

Data Processing System (DDPS)’’ System 

No. 09–70–0553 in the Federal Register 

on Thursday, February 22, 2007 (72 FR 

7993). CMS is withdrawing the February 

22, 2007 modification to the DDPS 

system of records pending the 

conclusion of rulemaking that will 

support the routine uses of data 

contained in the system of records. The 

existing notice established at 70 FR 

58436 (October 6, 2005) will remain the 

effective notice for the DDPS system of 

records. 

FOR FURTHER INFORMATION CONTACT: 

Inquiries may be directed to: CMS 

Privacy Officer, Division of Privacy 

Compliance, Enterprise Architecture 

and Strategy Group, Office of 

Information Services, CMS, Room N2–

04–27, 7500 Security Boulevard, 

Baltimore, Maryland 21244–1850. He 

can also be reached at 410–786–5357 or 

by e-mail at walter.stone@cms.hhs.gov. 

Dated: February 28, 2007. 

William Saunders, 

Acting Deputy Director, Office of Information 

Services, Centers for Medicare & Medicaid 

Services. 

[FR Doc. E7–4133 Filed 3–7–07; 8:45 am] 

BILLING CODE 4120–03–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

Privacy Act of 1974; Report of a 

Modified System of Records 

AGENCY: Department of Health and 

Human Services (HHS), Center for 

Medicare & Medicaid Services (CMS). 

ACTION: Notice of a Modified System of 

Records (SOR). 

SUMMARY: In accordance with the 

requirements of the Privacy Act of 1974, 

we are proposing to modify an existing 

system titled, ‘‘Medicare Learning 

Network (MLN) Registration and 

Product Ordering System (REPOS),’’ No. 

09–70–0542, most recently modified at 

68 FR 35897 (June 17, 2003). We 

propose to modify existing routine use 

number 1 that permits disclosure to 

agency contractors and consultants to 

include disclosure to CMS grantees who 

perform a task for the agency. CMS 

grantees, charged with completing 

projects or activities that require CMS 

data to carry out that activity, are 

classified separate from CMS 

contractors and/or consultants. The 

modified routine use will remain as 

routine use number 1. We will delete 

routine use number 2 authorizing 

disclosure to support constituent 

requests made to a congressional 

representative. If an authorization for 

the disclosure has been obtained from 

the data subject, then no routine use is 

needed. The Privacy Act allows for 

disclosures with the ‘‘prior written 

consent’’ of the data subject. 

Finally, we will delete the section 

titled ‘‘Additional Circumstances 

Affecting Routine Use Disclosures,’’ that 

addresses ‘‘Protected Health Information 

(PHI)’’ and ‘‘small cell size.’’ The 

requirement for compliance with HHS 

regulation ‘‘Standards for Privacy of 

Individually Identifiable Health 

Information’’ does not apply because 

this system does not collect or maintain 

PHI. In addition, our policy to prohibit 

release if there is a possibility that an 

individual can be identified through 

‘‘small cell size’’ is not applicable to the 

data maintained in this system. 

We are modifying the language in the 

routine uses to provide a proper 

explanation as to the need for the 

routine use and to provide clarity to 

CMS’s intention to disclose individualspecific information contained in this 

system. The routine uses will then be 

prioritized and reordered according to 

their usage. We will also take the 

opportunity to update any sections of 

the system that were affected by the 

recent reorganization or because of the 

impact of the Medicare Prescription 

Drug, Improvement, and Modernization 

Act of 2003 (MMA) (Pub. L. 108–173) 

provisions and to update language in 

the administrative sections to 

correspond with language used in other 

CMS SORs. 

The primary purpose of the system of 

records is to collect and maintain 

information on health care providers, 

and other individuals ordering provider 

educational materials who voluntarily 

register for computer/web-based 

training courses, satellite broadcasts and 

train-the-trainer sessions. Information in 

this system will also be used to: (1) 

support regulatory and policy functions 

performed within the Agency or by a 

contractor, consultant, or grantee; and 

(2) to support litigation involving the 

Agency related to this system. We have 

provided background information about 

the modified system in the 

SUPPLEMENTARY INFORMATION section 

below. Although the Privacy Act 

requires only that CMS provide an 

opportunity for interested persons to 

comment on the proposed routine uses, 

CMS invites comments on all portions 

of this notice. See EFFECTIVE DATES

section for comment period. 

DATES: Effective Date: CMS filed a 

modified SOR report with the Chair of 

the House Committee on Government 

Reform and Oversight, the Chair of the 

Senate Committee on Homeland 

Security & Governmental Affairs, and 

the Administrator, Office of Information 

and Regulatory Affairs, Office of 

Management and Budget (OMB) on 

February 7, 2007. To ensure that all 

parties have adequate time in which to 

comment, the modified system will 

become effective 30 days from the 

publication of the notice, or 40 days 

from the date it was submitted to OMB 

and the Congress, whichever is later. We 

may defer implementation of this 

system or one or more of the routine use 

statements listed below if we receive 

comments that persuade us to defer 

implementation. 

ADDRESSES: The public should address 

comments to: CMS Privacy Officer, 

Division of Privacy Compliance, 

Enterprise Architecture and Strategy 

Group, Office of Information Services, 

CMS, Room N2–04–27, 7500 Security 

Boulevard, Baltimore, Maryland 21244–

1850. Comments received will be 

available for review at this location, by 

appointment, during regular business 

hours, Monday through Friday from 9 

a.m.–3 p.m., Eastern Time zone. 

FOR FURTHER INFORMATION CONTACT: 

Mary Case, Technical Advisor, Division 


sroberts on PROD1PC70 with NOTICES