OCC releases asset dissipation underwriting guidance

Agency Rule-Making & Guidance OCC Mortgages Underwriting

On July 23, the OCC issued Bulletin 2019-36 reminding banks to follow safety and soundness standards and guidelines when using asset dissipation underwriting (ADU)—also known as “asset depletion underwriting or asset amortization underwriting”—to originate mortgage loans. Specifically, the OCC states banks should develop and implement policies and processes for ADU in a manner consistent with existing regulatory real estate and mortgage lending standards and guidelines. Banks should also align ADU activities with their overall business plans and strategies, including “working with consumers who have a capacity to repay a mortgage loan even though they do not meet traditional income-based underwriting repayment standards.” The OCC additionally expects bank management to “develop and maintain risk governance processes that are commensurate with the credit risk of ADU, particularly if the offering constitutes a deviation from the bank’s existing mortgage lending business activities.” With regard to Fannie Mae and Freddie Mac loans, the OCC states that lenders may use ADU to underwrite mortgage loans based on certain assets, including employment-related retirement assets, for applicants who are near retirement.