Federal Register / Vol. 70, No. 24 / Monday, February 7, 2005 / Rules and Regulations 6329

1 12 U.S.C. 371(a); and see 12 CFR part 34 (OCC 

rules governing real estate lending and appraisals 

implementing 12 U.S.C. 1828(o)). 2Federal consumer protection laws and 

regulations that apply with respect to the 

residential real estate lending activities of national 

banks and their operating subsidiaries include: the 

Federal Trade Commission Act, 15 U.S.C. 41 et seq.; 

the Truth in Lending Act, 15 U.S.C. 1601 et seq.; 

the Home Ownership and Equity Protection Act, 15 

U.S.C. 1639 et seq.; the Fair Housing Act, 42 U.S.C. 

3601 et seq.; the Equal Credit Opportunity Act, 15 

U.S.C. 1691 et seq.; the Real Estate Settlement 

Procedures Act, 12 U.S.C. 1261 et seq.; the Flood 

Disaster Protection Act, 42 U.S.C. 4001 et seq.; the 

Home Mortgage Disclosure Act, 12 U.S.C. 2801 et 

seq.; the Fair Credit Reporting Act, 15 U.S.C. 1681 

et seq., as recently amended by the Fair and 

Accurate Credit Transactions Act of 2003, Pub. L. 

108–159, 111 Stat. 1952; the Fair Debt Collection 

Practices Act, 15 U.S.C. 1692 et seq.; and the 

privacy provisions of Title V of the Gramm-LeachBliley Act, 15 U.S.C. 6801 et seq.

meetings held on July 1, 2004, and 

August 12, 2004, respectively, where 

this action was deliberated were public 

meetings widely publicized throughout 

the California raisin industry. All 

interested persons were invited to 

attend the meetings and participate in 

the industry’s deliberations. 

This final rule imposes no additional 

reporting or recordkeeping requirements 

on either small or large raisin handlers. 

As with all Federal marketing order 

programs, reports and forms are 

periodically reviewed to reduce 

information requirements and 

duplication by industry and public 

sector agencies. Finally, USDA has not 

identified any relevant Federal rules 

that duplicate, overlap, or conflict with 

this rule. 

A proposed rule concerning this 

action was published in the Federal 

Register on December 10, 2004 (69 FR 

71753). Copies of the proposed rule 

were also mailed or sent via facsimile to 

all raisin handlers. Finally, the 

proposed rule was made available 

through the Internet by USDA and the 

Office of the Federal Register. A 10-day 

comment period ending December 20, 

2004, was provided to allow interested 

persons to respond to the proposal. 

One comment was received in 

reference to the proposal. The comment 

did not address anything specific to the 

proposed rule. No changes are made to 

the final rule in response to the 

comment. 

A small business guide on complying 

with fruit, vegetable, and specialty crop 

marketing agreements and orders may 

be viewed at: http://www.ams.usda.gov/

fv/moab.html. Any questions about the 

compliance guide should be sent to Jay 

Guerber at the previously mentioned 

address in the FOR FURTHER INFORMATION

CONTACT section. 

After consideration of all relevant 

material presented, including the 

recommendation and information 

submitted by the Committee and other 

available information, the comment 

received, it is hereby found that this 

rule, as hereinafter set forth, will tend 

to effectuate the declared policy of the 

Act. 

It is further found that good cause 

exists for not postponing the effective 

date of this rule until 30 days after 

publication in the Federal Register (5 

U.S.C. 553) because the marketing order 

requires that the rate of assessment for 

each crop year apply to assessable 

raisins handled during such period. The 

crop year began on August 1, 2004, and 

the harvest is completed. The 

Committee needs additional revenues to 

meet its ongoing expenses. Further, 

handlers are aware of this rule, which 

was recommended at a public meeting. 

Also, a 10-day comment period was 

provided for in the proposed rule, and 

no comments from the California raisin 

industry were received.

List of Subjects in 7 CFR Part 989 

Grapes, Marketing agreements, 

Raisins, Reporting and recordkeeping 

requirements.

■ For the reasons set forth in the 

preamble, 7 CFR part 989 is amended as 

follows:

PART 989—RAISINS PRODUCED 

FROM GRAPES GROWN IN 

CALIFORNIA

■ 1. The authority citation for 7 CFR part 

989 continues to read as follows:

Authority: 7 U.S.C. 601–674.

■ 2. Section 989.347 is revised to read as 

follows:

§ 989.347 Assessment rate. 

On and after August 1, 2004, an 

assessment rate of $11.00 per ton is 

established for assessable raisins 

produced from grapes grown in 

California.

Dated: February 1, 2005. 

Kenneth C. Clayton, 

Acting Administrator, Agricultural Marketing 

Service.

[FR Doc. 05–2217 Filed 2–4–05; 8:45 am] 

BILLING CODE 3410–02–P

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the 

Currency 

12 CFR Part 30 

[Docket No. 05–02] 

RIN 1557–AC93 

OCC Guidelines Establishing 

Standards for Residential Mortgage 

Lending Practices

AGENCY: Office of the Comptroller of the 

Currency, Treasury.

ACTION: Appendix to regulations; final 

guidelines. 

SUMMARY: The Office of the Comptroller 

of the Currency (OCC) is issuing, as an 

appendix to part 30 of its regulations, 

guidelines concerning the residential 

mortgage lending practices of national 

banks and their operating subsidiaries 

(Guidelines) as a further step to protect 

against national bank involvement in 

predatory, abusive, unfair, or deceptive 

residential mortgage lending practices. 

The Guidelines describe particular 

practices inconsistent with sound 

residential mortgage lending practices. 

They also describe other terms and 

practices that may be conducive to 

predatory, abusive, unfair, or deceptive 

lending practices, depending on the 

circumstances, and which, accordingly, 

warrant a heightened degree of care by 

lenders. In addition, the Guidelines 

address the steps that banks should take 

to mitigate risks associated with their 

purchase of residential mortgage loans 

and use of mortgage brokers to originate 

loans. The Guidelines focus on the 

substance of activities and practices, not 

on the creation of policies. The 

standards contained in the Guidelines 

are enforceable pursuant to section 39 of 

the Federal Deposit Insurance Act and 

the implementing process set forth in 

part 30 of the OCC’s regulations.

EFFECTIVE DATE: April 8, 2005.

FOR FURTHER INFORMATION CONTACT: For 

questions concerning the Guidelines, 

contact Michael Bylsma, Director, 

Community and Consumer Law 

Division, (202) 874–5750, Michele 

Meyer, Special Counsel, Legislative & 

Regulatory Activities Division, (202) 

874–5090, or Rick Freer, National Bank 

Examiner, Compliance, (202) 874–4428, 

250 E Street, SW., Washington, DC 

20219.

SUPPLEMENTARY INFORMATION: 

Background 

National banks are authorized by 

statute to engage in real estate lending 

activities, subject to the requirements of 

Federal law,1 and national banks’ real 

estate lending is closely supervised and 

comprehensively regulated under a 

regulatory framework that includes a 

wide variety of Federal laws and 

regulations designed to ensure the 

protection of consumers of banks’

residential mortgage products and 

services.2

Fair treatment of customers is 

fundamental to sound banking practices 

6330 Federal Register / Vol. 70, No. 24 / Monday, February 7, 2005 / Rules and Regulations 

3OCC Advisory Letter 2003–2, ‘‘Guidelines for 

National Banks to Guard Against Predatory and 

Abusive Lending Practices’’ (Feb. 21, 2003) and 

OCC Advisory Letter 2003–3, ‘‘Avoiding Predatory 

and Abusive Lending Practices in Brokered and 

Purchased Loans’’ (Feb. 21, 2003).

4 69 FR at 1917 (to be codified at 12 CFR 34.3). 

Through amendments to other provisions of our 

rules, both the anti-predatory lending standard and 

the prohibition against unfair or deceptive practices 

also apply to national banks’ non-real estate 

lending. A number of commenters on these 

amendments lauded the content of the Advisory 

Letters but questioned their enforceability.

5A listing of enforcement actions taken recently 

by the OCC is available on our Web site in the 

‘‘Popular FOIA Requests’’ section at http://

www.occ.treas.gov/foia/foiadocs.htm.

6 12 CFR 5.34(e) (operating subsidiaries may 

conduct only those activities permissible for the 

parent national bank; operating subsidiaries’

authorized activities are subject to the same terms 

and conditions as apply to the parent bank).

7 12 U.S.C. 1831p–1. Section 39 was enacted as 

part of the Federal Deposit Insurance Corporation 

Improvement Act of 1991, Public Law 102–242, 

section 132(a), 105 Stat. 2236, 2267–70 (Dec. 19, 

1991) (FDICIA).

8See 12 U.S.C. 1831p–1(e)(1)(A)(i) and (ii). In 

either case, however, the statute authorizes the 

issuance of an order and the subsequent 

enforcement of that order in court, independent of 

any other enforcement action that may be available 

in a particular case.

9The procedures governing the determination 

and notification of failure to satisfy a standard 

prescribed pursuant to Section 39, the filing and 

review of compliance plans, and the issuance, if 

necessary, of orders appear in our regulations at 12 

CFR 30.3, 30.4, and 30.5, respectively.

and the OCC has taken a number of 

measures in recent years to assure that 

the lending practices of national banks 

reflect that standard. In particular, in 

February, 2003, we issued two advisory 

letters alerting national banks to 

practices that may be considered 

predatory or abusive and advising 

national banks on measures to avoid 

such practices. The advisories 

addressed national banks’ mortgage 

origination activity, as well as purchases 

of loans and use of third-party brokers 

to conduct mortgage lending.3 In 

January, 2004, we added to our rules an 

express prohibition on making mortgage 

loans based predominantly on the 

bank’s realization of foreclosure or 

liquidation value of the collateral, 

without regard to the borrower’s ability 

to repay the loan according to its terms, 

a prohibition that goes to the heart of 

predatory lending. In that same 

rulemaking, we also added provisions 

prohibiting banks from engaging in 

unfair or deceptive practices within the 

meaning of section 5 of the Federal 

Trade Commission Act, 15 U.S.C. 45.4

In addition to establishing standards by 

regulation and in guidance, our overall 

approach includes taking prompt 

enforcement action to remedy abusive 

practices if we find that they have 

occurred.5

In order to enhance our ability to 

apply the guidance described in our 

February, 2003 advisory letters, we are 

now adopting the core elements of that 

guidance in the form of guidelines for 

residential mortgage lending standards, 

in a new Appendix C to part 30 of our 

regulations. These standards further the 

OCC’s goal of ensuring that national 

banks and their operating subsidiaries 

are not involved directly or indirectly 

through loans that they purchase or 

make through intermediaries, in 

predatory or abusive residential 

mortgage lending practices. The 

Guidelines incorporate and implement 

the principles of, but do not replace, the 

February, 2003 advisory letters. The 

advisories remain in effect as 

supervisory guidance that provides 

supplemental context and explanation 

of the issues addressed in these 

Guidelines. Like the advisories, the 

Guidelines apply to national banks and, 

pursuant to OCC regulations, to their 

operating subsidiaries.6 The Guidelines 

focus on the substance of activities and 

practices, not on the creation of policies. 

The Guidelines are enforceable pursuant 

to the process provided in Section 39 of 

the Federal Deposit Insurance Act 

(FDIA) and part 30.

Enforcement of the Guidelines 

The OCC is issuing these Guidelines 

pursuant to Section 39 of the FDIA.7

Section 39 authorizes the OCC to 

prescribe safety and soundness 

standards in the form either of a 

regulation or guidelines. These 

standards currently include, among 

others, operational and managerial 

standards for insured depository 

institutions that relate to internal 

controls, information systems, and audit 

systems; loan documentation; credit 

underwriting; interest rate exposure; 

and asset growth. Section 39 also 

provides, without qualification, that 

‘‘each appropriate Federal banking 

agency’’ may prescribe ‘‘such other 

operational and managerial standards’’

as it ‘‘determines to be appropriate.’’

Section 39 prescribes different 

consequences depending on whether 

the standards it authorizes are issued by 

regulation or guidelines. Pursuant to 

Section 39, if a national bank fails to 

meet a standard prescribed by 

regulation, the OCC must require it to 

submit a plan specifying the steps it will 

take to comply with the standard. If a 

national bank fails to meet a standard 

prescribed by guideline, the OCC has 

the discretion to decide whether to 

require the submission of such a plan.8

Issuing these residential mortgage 

lending practices standards by guideline 

rather than regulation provides the OCC 

with the flexibility to pursue the course 

of action that is most appropriate, taking 

into consideration the specific 

circumstances of a national bank’s 

noncompliance with one or more 

standards, and the bank’s self-corrective 

and remedial responses.

The Guidelines incorporate key 

provisions of the February, 2003 

advisory letters and describe certain 

practices the OCC believes are 

inconsistent with sound residential 

mortgage lending practices. They also 

describe other terms and practices that 

may be conducive to predatory, abusive, 

unfair, or deceptive lending, and which, 

accordingly, warrant a heightened 

degree of care by lenders. The 

Guidelines thus incorporate the central 

principles and considerations contained 

in the February, 2003 advisories into a 

framework that specifically provides for 

their enforcement on a case-by-case 

basis under the framework provided by 

Section 39 and part 30 of our 

regulations. 

The enforcement remedies prescribed 

by Section 39 are implemented in 

procedural rules contained in part 30 of 

the OCC’s rules. Under these provisions, 

the OCC may initiate the part 30 process 

when we determine, by examination or 

otherwise, that a national bank has 

failed to meet the standards set forth in 

the Guidelines.9 Upon making that 

determination, we may request, through 

a supervisory letter or in a report of 

examination, that the national bank 

submit a compliance plan to the OCC 

detailing the steps the bank will take to 

correct the deficiencies and the time 

within which it will take those steps. 

This request is termed a Notice of 

Deficiency. Upon receiving a Notice of 

Deficiency from the OCC, the national 

bank must submit a compliance plan to 

the OCC for approval within 30 days.

If a national bank fails to submit an 

acceptable compliance plan, or fails 

materially to comply with a compliance 

plan approved by the OCC, the OCC 

may issue a Notice of Intent to Issue an 

Order pursuant to Section 39 (Notice of 

Intent). The bank then has 14 days to 

respond to the Notice of Intent. After 

considering the bank’s response, the 

OCC may issue the order, decide not to 

issue the order, or seek additional 

information from the bank before 

making a final decision. Alternatively, 

the OCC may issue an order without 

providing the bank with a Notice of 

Intent. In such a case, the bank may 

appeal after-the-fact to the OCC and the 

OCC has 60 days to consider the appeal 

and render a final decision. When the 

OCC issues an order, a bank is deemed 

to be in non-compliance with part 30. 

Federal Register / Vol. 70, No. 24 / Monday, February 7, 2005 / Rules and Regulations 6331

10 5 U.S.C. 551 et seq.

11 5 U.S.C. 553(b)(A).

Orders are formal, public documents, 

and they may be enforced in district 

court or through the assessment of civil 

money penalties under 12 U.S.C. 1818. 

Description of the OCC’s Residential 

Mortgage Lending Practices Guidelines 

The Guidelines consist of three parts. 

Part I provides an introduction to the 

Guidelines and explains their scope and 

application. Part II sets forth general 

standards for residential mortgage 

lending practices. Part III describes the 

implementation of those standards. We 

have also made technical conforming 

amendments to the part 30 regulations 

to add references to new Appendix C, 

which contains the Guidelines, where 

appropriate. 

Part I: Introduction 

Part I describes the purpose of the 

Guidelines, which is to protect against 

involvement by national banks and their 

operating subsidiaries, either directly or 

through loans that they purchase or 

make through intermediaries, in 

predatory or abusive residential 

mortgage lending practices that are 

injurious to bank customers and that 

expose the bank to credit, compliance, 

reputation, and other risks associated 

with abusive lending practices. The 

Guidelines apply to residential mortgage 

lending by national banks, federal 

branches and agencies of foreign banks, 

and operating subsidiaries of such 

entities, except for brokers, dealers, 

persons providing insurance, 

investment companies, and investment 

advisers, all of which are functionally 

regulated pursuant to various provisions 

of law. For purposes of the Guidelines, 

a residential mortgage loan is any loan 

or other extension of credit made to one 

or more individuals for personal, family, 

or household purposes and secured by 

an owner-occupied, 1–4 family 

residential dwelling, including a 

cooperative unit or mobile home. 

The Guidelines are enforceable, 

pursuant to Section 39 of the FDIA and 

part 30 of our rules, as we have 

described. However, as set forth in Part 

I, nothing in the Guidelines in any way 

limits the authority of the OCC to 

address unsafe or unsound practices or 

conditions, unfair or deceptive 

practices, or other violations of law. 

Thus, for example, a bank’s failure to 

comply with the standards set forth in 

these Guidelines also may be actionable 

under section 8 of the FDIA if the failure 

constitutes an unsafe or unsound 

practice, or under section 5 of the 

Federal Trade Commission Act if it is an 

unfair or deceptive practice. 

Part II: Standards for Residential 

Mortgage Lending Practices 

Part II of the Guidelines describes two 

overarching objectives that should 

inform a bank’s residential mortgage 

lending activities. First, the bank must 

be able effectively to manage the various 

risks—including credit, legal, 

compliance, and reputation risks—

associated with those activities. Second, 

the bank must not become engaged in 

abusive, predatory, unfair, or deceptive 

practices, directly, indirectly through 

mortgage brokers or other 

intermediaries, or through purchased 

loans. These objectives reflect 

expectations that are fundamental to 

sound banking practices. Different 

banks may achieve these objectives 

using different methods, however, and 

the Guidelines expressly recognize that 

the practices a bank follows in its 

residential mortgage lending activities 

need to be consistent with, and 

appropriate to, its size and complexity 

and the nature and scope of those 

activities. 

Part III: Implementation of Residential 

Mortgage Lending Practices 

Part III describes standards for the 

implementation of the objectives 

described in Part II. It comprises six 

components. First, Part III lists and 

briefly describes specific lending 

practices inconsistent with sound 

residential mortgage lending practices, 

including practices known as equity 

stripping, fee packing, and loan 

flipping, refinancing of a special 

subsidized mortgage on terms adverse to 

the consumer, and encouraging a 

borrower to breach a contract and 

default on an existing loan in 

connection with a refinancing of that 

loan. The features of these practices are 

widely recognized as abusive and were 

addressed by the OCC in our February, 

2003 advisory letters. 

Second, Part III describes certain loan 

terms, conditions and features—such as 

financing single premium insurance, 

negative amortization and mandatory 

arbitration—that may, under particular 

circumstances, be susceptible to 

abusive, predatory, unfair or deceptive 

practices, yet may be acceptable and 

may benefit customers under other 

circumstances. Part III cautions banks to 

exercise care when they offer loans 

containing these terms, conditions, and 

features, particularly in connection with 

subprime lending. 

Third, banks that decide to offer loans 

with the types of features just described 

should take particular account of the 

circumstances of the consumers to 

whom the loans are offered. Banks 

should exercise heightened diligence if 

they offer such loans to consumers who 

are elderly, substantially indebted, not 

financially sophisticated, have language 

barriers, have limited or poor credit 

histories, or have other characteristics 

that limit their credit choices. In 

addition, banks should apply 

heightened internal controls and 

monitoring with regard to this type of 

lending. 

Fourth, banks should provide timely, 

sufficient, and accurate information to 

consumers concerning the terms and the 

relative costs, risks, and benefits of the 

loan. 

Fifth, with respect to consumer 

residential mortgage loans that a bank 

purchases, or makes through a mortgage 

broker or other intermediary, the bank’s 

residential mortgage lending activities 

also should include appropriate 

measures to mitigate risks. Part III 

provides a number of examples of such 

measures, including criteria for entering 

into and continuing relationships with 

intermediaries and originators, methods 

through which the bank may retain 

appropriate controls over mortgage 

origination functions, and criteria and 

procedures for the bank to take 

appropriate corrective action if 

necessary. 

Finally, Part III makes clear that a 

bank’s responsibilities for maintaining 

appropriate consumer residential 

mortgage lending practices are ongoing. 

For example, on a continuing basis, a 

bank should monitor its compliance 

with applicable law and its internal 

lending standards, and monitor and 

evaluate its handling of customer 

complaints. The bank’s activities also 

should include appropriate steps for 

taking corrective action in response to 

failure to adhere to the requirements of 

the law or its internal lending standards, 

and for making adjustments to the 

bank’s activities to enhance their 

effectiveness or to reflect changes in 

business practices, market conditions, 

or the bank’s lines of business, 

residential mortgage loan programs, or 

customer base. 

Effective Date

These Guidelines take effect April 8, 

2005. The Administrative Procedure 

Act 10 (APA) requirements for notice 

and opportunity for comment do not 

apply to the Guidelines. The APA 

excepts from its notice and comment 

requirements, among other types of 

issuances, ‘‘general statements of 

policy.’’ 11 General statements of policy 

6332 Federal Register / Vol. 70, No. 24 / Monday, February 7, 2005 / Rules and Regulations 

12U.S. Department of Justice, Attorney General’s 

Manual on the Administrative Procedure Act, at 30 

n.3 (1947).

13 Guardian Federal Savings and Loan Ass’n v. 

Federal Savings and Loan Insurance Corp., 589 

F.2d 658, 666–67 (D.C. Cir. 1978) (concluding that 

an FSLIC bulletin that used ‘‘directive’’ language to 

specify the criteria necessary for a satisfactory audit 

of a savings association was nonetheless a ‘‘general 

statement of policy’’ within the meaning of the APA 

because it preserved the FSLIC’s discretion to 

accept a non-conforming audit report or to prescribe 

additional requirements in a particular case). See 

also Chen Zhon Chai v. Carroll, 48 F.3d 1331, 1341 

(4th Cir. 1995) (‘‘A rule is a general statement of 

policy if it does not establish a binding norm and 

leaves agency officials free to exercise their 

discretion.’’)

are ‘‘statements issued by an agency to 

advise the public prospectively of the 

manner in which the agency proposes to 

exercise a discretionary power.’’ 12

Consistent with this definition, courts 

have found that an issuance is a general 

statement of policy if it applies 

prospectively and ‘‘leaves the [agency] 

free to exercise [its] informed discretion 

in the situations that arise.’’ 13

Although these residential mortgage 

lending standards build on the 

standards in our 2003 Advisory Letters, 

their placement within the enforcement 

framework established by Section 39 of 

the FDIA applies prospectively only. 

Moreover, we are issuing the Guidelines 

in a form that, by the express terms of 

Section 39, preserves the OCC’s 

discretion to require a compliance plan, 

and, thus, whether to initiate the part 30 

process in any particular case. For these 

reasons, we conclude that the 

Guidelines fall within the APA 

exception for general statements of 

policy and that notice and comment 

procedures are, accordingly, not 

required. 

Regulatory Flexibility Analysis 

The Regulatory Flexibility Act (RFA) 

does not apply to a rule for which an 

agency is not required to publish a 

notice of proposed rulemaking. 5 U.S.C. 

603. 

Executive Order 12866 

The OCC has determined that the 

Guidelines are not a significant 

regulatory action under Executive Order 

12866. 

Unfunded Mandates Reform Act 

Analysis 

The Unfunded Mandates Reform Act 

of 1995 (UMA), Public Law 104–4, 

applies only when an agency is required 

to promulgate a general notice of 

proposed rulemaking or a final rule for 

which a general notice of proposed 

rulemaking was published. 2 U.S.C. 

1532. As noted earlier, the OCC has 

determined that a notice of proposed 

rulemaking was not required for these 

Guidelines. Accordingly, the OCC 

concludes that the UMA does not 

require an unfunded mandates analysis 

of the Guidelines. 

Moreover, the OCC believes that the 

Guidelines will not result in 

expenditures by State, local, and tribal 

governments, or by the private sector, of 

more than $100 million in any one year. 

Accordingly, the OCC has not prepared 

a budgetary impact statement or 

specifically addressed the regulatory 

alternatives considered.

List of Subjects in 12 CFR Part 30 

Banks, banking, Consumer protection, 

National banks, Privacy, Reporting and 

recordkeeping requirements.

■ For the reasons set forth in the 

preamble, part 30 of chapter I of title 12 

of the Code of Federal Regulations is 

amended as follows:

PART 30—SAFETY AND SOUNDNESS 

STANDARDS

■ 1. The authority citation for part 30 is 

revised to read as follows:

Authority: 12 U.S.C. 93a, 371, 1818, 1831p, 

3102(b); 15 U.S.C. 1681S, 1681W, 6801, 

6805(b)(1).

§ 30.1 [Amended]

■ 2. Section 30.1(a) is amended by 

removing ‘‘appendices A and B’’ and 

adding in its place ‘‘appendices A, B, and 

C’’.

§ 30.2 [Amended]

■ 3. In § 30.2, add a final sentence to read 

as follows: ‘‘The OCC Guidelines 

Establishing Standards for Residential 

Mortgage Lending Practices are set forth 

in appendix C to this part.’’

§ 30.3 [Amended]

■ 4. Section 30.3(a) is amended by 

removing ‘‘and the Interagency 

Guidelines Establishing Standards for 

Safeguarding Customer Information set 

forth in appendix B to this part’’ and 

adding in its place ‘‘the Interagency 

Guidelines Establishing Standards for 

Safeguarding Customer Information set 

forth in appendix B to this part, or the 

OCC Guidelines Establishing Standards 

for Residential Mortgage Lending 

Practices set forth in appendix C to this 

part’’.

■ 5. A new Appendix C is added to part 

30 to read as follows: 

Appendix C to Part 30—OCC 

Guidelines Establishing Standards for 

Residential Mortgage Lending Practices

Table of Contents 

I. Introduction 

A. Scope 

B. Preservation of Existing Authority 

C. Relationship to Other Legal 

Requirements 

D. Definitions

II. Standards for Residential Mortgage 

Lending Practices 

A. General 

B. Objectives 

III. Implementation of Residential Mortgage 

Lending Standards 

A. Avoidance of Particular Loan Terms, 

Conditions, and Features 

B. Prudent Consideration of Certain Loan 

Terms, Conditions and Features 

C. Enhanced Care to Avoid Abusive Loan 

Terms, Conditions, and Features in 

Certain Mortgages 

D. Avoidance of Consumer 

Misunderstanding 

E. Purchased and Brokered Loans 

F. Monitoring and Corrective Action

I. Introduction 

i. These OCC Guidelines for 

Residential Mortgage Lending Practices 

(Guidelines) set forth standards 

pursuant to Section 39 of the Federal 

Deposit Insurance Act, 12 U.S.C. 1831p–

1 (Section 39). The Guidelines are 

designed to protect against involvement 

by national banks and their operating 

subsidiaries, either directly or through 

loans that they purchase or make 

through intermediaries, in predatory or 

abusive residential mortgage lending 

practices that are injurious to bank 

customers and that expose the bank to 

credit, legal, compliance, reputation, 

and other risks. The Guidelines focus on 

the substance of activities and practices, 

not the creation of policies. The 

Guidelines are enforceable under 

Section 39 in accordance with the 

procedures prescribed by the 

regulations in 12 CFR part 30. 

ii. As the OCC has previously 

indicated in guidance to national banks 

and in rulemaking proceedings (OCC 

Advisory Letters 2003–2 and 2003–3 

(Feb. 21, 2003)), many of the abusive 

practices commonly associated with 

predatory mortgage lending, such as 

loan flipping and equity stripping, will 

involve conduct that likely violates the 

Federal Trade Commission Act’s (FTC 

Act) prohibition against unfair or 

deceptive acts or practices. 15 U.S.C. 45. 

In addition, loans that involve 

violations of the FTC Act, or mortgage 

loans based predominantly on the 

foreclosure or liquidation value of the 

borrower’s collateral without regard to 

the borrower’s ability to repay the loan 

according to its terms, will involve 

violations of OCC regulations governing 

real estate lending activities, 12 CFR 

34.3 (Lending Rules). 

iii. In addition, national banks and 

their operating subsidiaries must 

comply with the requirements and 

Guidelines affecting appraisals of 

Federal Register / Vol. 70, No. 24 / Monday, February 7, 2005 / Rules and Regulations 6333

residential mortgage loans and appraiser 

independence. 12 CFR part 34, subpart 

C, and the Interagency Appraisal and 

Evaluation Guidelines (OCC Advisory 

Letter 2003–9 (October 28, 2003)). For 

example, engaging in a practice of 

influencing the independent judgment 

of an appraiser with respect to a 

valuation of real estate that is to be 

security for a residential mortgage loan 

would violate applicable standards. 

iv. Targeting inappropriate credit 

products and unfair loan terms to 

certain borrowers also may entail 

conduct that violates the FTC Act, as 

well as the Equal Credit Opportunity 

Act (ECOA) and the Fair Housing Act 

(FHA). 15 U.S.C. 1691 et seq. 42 U.S.C. 

3601 et seq. For example, ‘‘steering’’ a 

consumer to a loan with higher costs 

rather than to a comparable loan offered 

by the bank with lower costs for which 

the consumer could qualify, on a 

prohibited basis such as the borrower’s 

race, national origin, age, gender, or 

marital status, would be unlawful. 

v. OCC regulations also prohibit 

national banks and their operating 

subsidiaries from providing lump sum, 

single premium fees for debt 

cancellation contracts and debt 

suspension agreements in connection 

with residential mortgage loans. 12 CFR 

37.3(c)(2). Some lending practices and 

loan terms, including financing single 

premium credit insurance and the use of 

mandatory arbitration clauses, also may 

significantly impair the eligibility of a 

residential mortgage loan for purchase 

in the secondary market. 

vi. Finally, OCC regulations and 

supervisory guidance on fiduciary 

activities and asset management address 

the need for national banks to perform 

due diligence and exercise appropriate 

control with regard to trustee activities. 

See 12 CFR 9.6 (a) and Comptroller’s 

Handbook on Asset Management. For 

example, national banks should exercise 

appropriate diligence to minimize 

potential reputation risks when they 

undertake to act as trustees in mortgage 

securitizations. 

A. Scope. These Guidelines apply to 

the residential mortgage lending 

activities of national banks, federal 

branches and agencies of foreign banks, 

and operating subsidiaries of such 

entities (except brokers, dealers, persons 

providing insurance, investment 

companies, and investment advisers). 

B. Preservation of Existing Authority.

Neither Section 39 nor these Guidelines 

in any way limits the authority of the 

OCC to address unsafe or unsound 

practices or conditions, unfair or 

deceptive practices, or other violations 

of law. The OCC may take action under 

Section 39 and these Guidelines 

independently of, in conjunction with, 

or in addition to any other enforcement 

action available to the OCC. 

C. Relationship to Other Legal 

Requirements. Actions by a bank in 

connection with residential mortgage 

lending that are inconsistent with these 

Guidelines or Appendix A to this Part 

30 may also constitute unsafe or 

unsound practices for purposes of 

section 8 of the Federal Deposit 

Insurance Act, 12 U.S.C. 1818, unfair or 

deceptive practices for purposes of 

section 5 of the FTC Act, 15 U.S.C 45, 

and the OCC Lending Rules, 12 CFR 

34.3, or violations of the ECOA and 

FHA. 

D. Definitions.

1. Except as modified in these 

Guidelines, or unless the context 

otherwise requires, the terms used in 

these Guidelines have the same 

meanings as set forth in sections 3 and 

39 of the Federal Deposit Insurance Act, 

12 U.S.C. 1813 and 1831p–1. 

2. For purposes of these Guidelines, 

the following definitions apply: 

a. Residential mortgage loan means 

any loan or other extension of credit 

made to one or more individuals for 

personal, family, or household purposes 

secured by an owner-occupied 1–4 

family residential dwelling, including a 

cooperative unit or mobile home. 

b. Bank means any national bank, 

federal branch or agency of a foreign 

bank, and any operating subsidiary 

thereof that is subject to these 

Guidelines. 

II. Standards for Residential Mortgage 

Lending Practices 

A. General. A bank’s residential 

mortgage lending activities should 

reflect standards and practices 

consistent with and appropriate to the 

size and complexity of the bank and the 

nature and scope of its lending 

activities. 

B. Objectives. A bank’s residential 

mortgage lending activities should 

reflect standards and practices that: 

1. Enable the bank to effectively 

manage the credit, legal, compliance, 

reputation, and other risks associated 

with the bank’s consumer residential 

mortgage lending activities. 

2. Effectively prevent the bank from 

becoming engaged in abusive, 

predatory, unfair, or deceptive practices, 

directly, indirectly through mortgage 

brokers or other intermediaries, or 

through purchased loans.

III. Implementation of Residential 

Mortgage Lending Standards 

A. Avoidance of Particular Loan 

Terms, Conditions, and Features. A 

bank should not become involved, 

directly or indirectly in residential 

mortgage lending activities involving 

abusive, predatory, unfair or deceptive 

lending practices, including, but not 

limited to: 

1. Equity Stripping and Fee Packing.

Repeat refinancings where a borrower’s 

equity is depleted as a result of 

financing excessive fees for the loan or 

ancillary products. 

2. Loan Flipping. Repeat refinancings 

under circumstances where the relative 

terms of the new and refinanced loan 

and the cost of the new loan do not 

provide a tangible economic benefit to 

the borrower. 

3. Refinancing of Special Mortgages.

Refinancing of a special subsidized 

mortgage that contains terms favorable 

to the borrower with a loan that does 

not provide a tangible economic benefit 

to the borrower relative to the 

refinanced loan. 

4. Encouragement of Default.

Encouraging a borrower to breach a 

contract and default on an existing loan 

prior to and in connection with the 

consummation of a loan that refinances 

all or part of the existing loan. 

B. Prudent Consideration of Certain 

Loan Terms, Conditions and Features.

Certain loan terms, conditions and 

features, may, under particular 

circumstances, be susceptible to 

abusive, predatory, unfair or deceptive 

practices, yet may be appropriate and 

acceptable risk mitigation measures, 

consistent with safe and sound lending, 

and benefit customers under other 

circumstances. A bank should prudently 

consider the circumstances, including 

the characteristics of a targeted market 

and applicable consumer and safety and 

soundness safeguards, under which the 

bank will engage directly or indirectly 

in making residential mortgage loans 

with the following loan terms, 

conditions and features: 

1. Financing single premium credit 

life, disability or unemployment 

insurance. 

2. Negative amortization, involving a 

payment schedule in which regular 

periodic payments cause the principal 

balance to increase. 

3. Balloon payments in short-term 

transactions. 

4. Prepayment penalties that are not 

limited to the early years of the loan, 

particularly in subprime loans. 

5. Interest rate increases upon default 

at a level not commensurate with risk 

mitigation. 

6. Call provisions permitting the bank 

to accelerate payment of the loan under 

circumstances other than the borrower’s 

default under the credit agreement or to 

mitigate the bank’s exposure to loss. 

6334 Federal Register / Vol. 70, No. 24 / Monday, February 7, 2005 / Rules and Regulations 

7. Absence of an appropriate 

assessment and documentation of the 

consumer’s ability to repay the loan in 

accordance with its terms, 

commensurate with the type of loan, as 

required by Appendix A of this part. 

8. Mandatory arbitration clauses or 

agreements, particularly if the eligibility 

of the loan for purchase in the 

secondary market is thereby impaired. 

9. Pricing terms that result in the 

loan’s being subject to the provisions of 

the Home Ownership and Equity 

Protection Act. 15 U.S.C. 1639 et seq.

10. Original principal balance of the 

loan in excess of appraised value. 

11. Payment schedules that 

consolidate more than two periodic 

payments and pay them in advance 

from the loan proceeds. 

12. Payments to home improvement 

contractors under a home improvement 

contract from the proceeds of a 

residential mortgage loan other than by 

an instrument payable to the consumer, 

jointly to the consumer and the 

contractor, or through an independent 

third party escrow agent. 

C. Enhanced Care to Avoid Abusive 

Loan Terms, Conditions, and Features 

in Certain Mortgages. A bank may face 

heightened risks when it solicits or 

offers loans to consumers who are not 

financially sophisticated, have language 

barriers, or are elderly, or have limited 

or poor credit histories, are substantially 

indebted, or have other characteristics 

that limit their credit choices. In 

connection with such consumers, a 

bank should exercise enhanced care if it 

employs the residential mortgage loan 

terms, conditions, and features 

described in paragraph B of this section 

III, and should also apply appropriate 

heightened internal controls and 

monitoring to any line of business that 

does so. 

D. Avoidance of Consumer 

Misunderstanding. A bank’s residential 

mortgage lending activities should 

include provision of timely, sufficient, 

and accurate information to a consumer 

concerning the terms and costs, risks, 

and benefits of the loan. Consumers 

should be provided with information 

sufficient to draw their attention to 

these key terms. 

E. Purchased and Brokered Loans.

With respect to consumer residential 

mortgage loans that the bank purchases, 

or makes through a mortgage broker or 

other intermediary, the bank’s 

residential mortgage lending activities 

should reflect standards and practices 

consistent with those applied by the 

bank in its direct lending activities and 

include appropriate measures to 

mitigate risks, such as the following: 

1. Criteria for entering into and 

continuing relationships with 

intermediaries and originators, 

including due diligence requirements. 

2. Underwriting and appraisal 

requirements. 

3. Standards related to total loan 

compensation and total compensation of 

intermediaries, including maximum 

rates, points, and other charges, and the 

use of overages and yield-spread 

premiums, structured to avoid 

providing an incentive to originate loans 

with predatory or abusive 

characteristics. 

4. Requirements for agreements with 

intermediaries and originators, 

including with respect to risks 

identified in the due diligence process, 

compliance with appropriate bank 

policies, procedures and practices and 

with applicable law (including remedies 

for failure to comply), protection of the 

bank against risk, and termination 

procedures. 

5. Loan documentation procedures, 

management information systems, 

quality control reviews, and other 

methods through which the bank will 

verify compliance with agreements, 

bank policies, and applicable laws, and 

otherwise retain appropriate oversight 

of mortgage origination functions, 

including loan sourcing, underwriting, 

and loan closings. 

6. Criteria and procedures for the 

bank to take appropriate corrective 

action, including modification of loan 

terms and termination of the 

relationship with the intermediary or 

originator in question. 

F. Monitoring and Corrective Action.

A bank’s consumer residential mortgage 

lending activities should include 

appropriate monitoring of compliance 

with applicable law and the bank’s 

lending standards and practices, 

periodic monitoring and evaluation of 

the nature, quantity and resolution of 

customer complaints, and appropriate 

evaluation of the effectiveness of the 

bank’s standards and practices in 

accomplishing the objectives set forth in 

these Guidelines. The bank’s activities 

also should include appropriate steps 

for taking corrective action in response 

to failures to comply with applicable 

law and the bank’s lending standards, 

and for making adjustments to the 

bank’s activities as may be appropriate 

to enhance their effectiveness or to 

reflect changes in business practices, 

market conditions, or the bank’s lines of 

business, residential mortgage loan 

programs, or customer base.

Dated: January 31, 2005. 

Julie L. Williams, 

Acting Comptroller of the Currency.

[FR Doc. 05–2211 Filed 2–4–05; 8:45 am] 

BILLING CODE 4810–33–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration 

14 CFR Part 71

[Docket No. FAA–2005–20060; Airspace 

Docket No. 05–ACE–2] 

Modification of Class E Airspace; 

Rolla, MO

AGENCY: Federal Aviation 

Administration (FAA), DOT.

ACTION: Direct final rule; request for 

comments. 

SUMMARY: This action amends Title 14 

Code of Federal Regulations, part 71 (14 

CFR 71) by revising Class E airspace at 

Rolla, MO. A review of controlled 

airspace for Rolla Downtown Airport 

revealed it does not comply with the 

criteria for 700 feet above ground level 

(AGL) airspace required for diverse 

departures. The area is modified and 

enlarged to conform to the criteria in 

FAA Orders.

DATES: This direct final rule is effective 

on 0901 UTC, May 12, 2005. Comments 

for inclusion in the Rules Docket must 

be received on or before March 2, 2005.

ADDRESSES: Send comments on this 

proposal to the Docket Management 

System, U.S. Department of 

Transportation, Room Plaza 401, 400 

Seventh Street, SW., Washington, DC 

20590–0001. You must identify the 

docket number FAA–2005–20060/

Airspace Docket No. 05–ACE–2, at the 

beginning of your comments. You may 

also submit comments on the Internet at 

http://dms.dot.gov. You may review the 

public docket containing the proposal, 

any comments received, and any final 

disposition in person in the Dockets 

Office between 9 a.m. and 5 p.m., 

Monday through Friday, except Federal 

holidays. The Docket Office (telephone 

1–800–647–5527) is on the plaza level 

of the Department of Transportation 

NASSIF Building at the above address.

FOR FURTHER INFORMATION CONTACT:

Brenda Mumper, Air Traffic Division, 

Airspace Branch, ACE–520A, DOT 

Regional Headquarters Building, Federal 

Aviation Administration, 901 Locust, 

Kansas City, MO 64106; telephone: 

(816) 329–2524.

SUPPLEMENTARY INFORMATION: This 

amendment to 14 CFR 71 modifies the 

Class E airspace area extending upward