General Industry Letters
Mortgage Banking Letters
Best Practices Letter on Foreclosure
Prevention/Mitigation for Affordable Mortgage Lending
August 27, 1998
TO THE INSTITUTION OR ORGANIZATION ADDRESSED:
As you are aware, late last year the Banking Department adopted a new Part 76 of the General Regulations of the Banking Board (Community Reinvestment Act requirements). While substantially similar to the new federal CRA regulations, the state rule incorporates several small, but noteworthy differences, based on additional concerns that were expressed during the public comment process for Part 76.
Chief among these were concerns raised by community development practitioners about the devastating impact that loan defaults and/or foreclosures may have in LMI communities. This debate continues at the national level, as well, with concerns about high foreclosure rates in some federally-subsidized or insured loan programs. These commenters urged that the new Part 76 directly address these concerns.
Accordingly, the definition of "community development", as expressed in the federal CRA regulation 1, was broadened in the new Part 76 to include a fifth factor, namely activities that seek to prevent defaults and/or foreclosures in affordable housing or small business loans made for community development purposes.
The eligibility of any activity for favorable consideration in a CRA Performance Evaluation must necessarily depend on the specific facts and circumstances of each case. Accordingly, the Department is unable to provide a definitive list of which practices would or would not receive special consideration. Nonetheless, we believe that the attached "Best Practices Guide" will offer guidance with respect to the types of activities that are anticipated by the new provision.
The Guide is broken down into four sections: (i) foreclosure prevention practices; (ii) property disposition practices; (iii) practices during foreclosure; and (iv) general recommendations. While the "general recommendations" would probably not constitute "community development", they are nonetheless included as recommended, albeit not required, practices.
As I am sure you will agree, there are many points along the way, at which steps can be taken to prevent either defaults and/or foreclosures, or in the event that a foreclosure occurs, to minimize the negative impact on the local community. Please note that the enclosed is not intended to be an exclusive list. The Banking Department welcomes and anticipates further innovation in this area.
Please feel free to contact Gail Bernstein-Gold, Director, Community Affairs Unit, at (212) 618-6477, with any questions or comments you may have.
Acting Deputy Superintendent
Consumer Services Division
1 The federal regulation defines community development to mean:
- Affordable housing (including multifamily rental housing) for low- or moderate-income individuals;
- Community services targeted to low- or moderate-income individuals;
- Activities that promote economic development by financing businesses or farms that meet the size eligibility standards of the Small Business Administration's Development Company or Small Business Investment Company programs or have gross annual revenues of $1 million or less; or
- Activities that revitalize or stabilize low- or moderate-income geographies. (Regulation BB of the Board of Governors of the Federal Reserve System, 12 CFR Part 228). (back)