Regulators Plan Pilot Mortgage Program

The announcement comes a day before Bernanke will testify before Congress.
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The Federal Reserve and four other regulators said Tuesday they are planning a pilot project to oversee nondepository mortgage lenders.

The announcement comes one day before Fed Chief Ben Bernanke is scheduled to testify before Congress, where he is expected to face tough criticism for the central bank's record on protecting consumers from unfair and deceptive lending practices.

Nontraditional lenders helped fuel the boom in mortgage financing to subprime borrowers in recent years, often pitching loans with risky terms, such as rates that reset after an initial, fixed period. Many of these borrowers are having trouble making payments now that the rates are resetting, and softer housing prices are making it harder to sell their home and pay off the loans.

The pilot program, which will start in the fourth quarter of this year, is a joint effort between the three federal agencies -- the Fed, the Office of Thrift Supervision, and the Federal Trade Commission -- and two organizations representing state mortgage regulators, the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. It will begin in the fourth quarter.

It will focus on "non-depository subsidiaries of bank and thrift holding companies, as well as mortgage brokers doing business with, or working for, these entities."

Additionally, the states will conduct coordinated examinations of independent state-licensed subprime lenders and their associated mortgage brokers. The agencies will select a sample of entities under their respective supervisory or other authorities for review or investigation.

The agencies also will share information about the reviews and investigations, take action as appropriate, collaborate on the lessons learned, and seek ways to better cooperate in ensuring effective and consistent reviews of these institutions.

"By joining together in applying a coordinated review program," the agencies said in their joint statement, "the regulatory agencies will be better positioned to evaluate and more consistently assess subprime mortgage lending practices across a broad range of mortgage lenders and other participants within the industry.

Bernanke is scheduled to testify before the House Financial Services Committee on Wednesday and the Senate Banking Committee on Thursday.