Policy Statement on "Predatory" Lending
"Predatory" lending has emerged as an important issue in the residential mortgage finance community, and there have been many proposals to address the issue on both a voluntary and legislative basis. Like its policyholders, Genworth continues to study the issue and work with others to achieve a practical solution that polices unscrupulous practices without reducing access to credit. Borrowers have a right to obtain credit even when others might think it "unwise", but borrowers also have a right to be dealt with fairly and in good faith. While discussions regarding "predatory" lending will continue to evolve, Genworth has decided to offer this policy statement as its response to the issue.
As a mortgage insurer, Genworth usually assumes the first risk of loss when it agrees to insure a loan. Thus, this Policy Statement attempts to identify criteria that might make a loan both unfair and risky, which would interfere with Genworth's fair lending objectives, and our widely shared commitment with our policyholders to facilitate homeownership and equity growth.
Except for sample reviews on appropriate bulk transactions, Genworth will not be underwriting or performing audit reviews to evaluate compliance with this policy statement. Because our principal focus is on insuring loans in the "prime" market, compliance with this policy will be presumed. However, self-certification may be required for policyholders that cannot demonstrate compliance as part of our routine audit process. "Generally ineligible" means that Genworth would prefer not to insure loans with those characteristics, but Genworth recognizes that some loans with those characteristics might be submitted and approved (or approved by our delegated policyholders) inadvertently.
Accordingly, Genworth will treat loans with the following characteristics as "generally ineligible" to be insured:
- High Cost Loans - Loans with an interest rate 8% greater than the Treasury of comparable maturity (as measured on the 15th business day of the month prior to receipt of the loan application).
- Loans with Excessive Points and Fees - Loans with total points and fees exceeding the greater of $465 or 8% of total loan amount, with the definition of "points and fees" following the Home Ownership and Equity Protection Act of 1994 and its implementing regulation.
- Flipping - High cost loans with a history of repetitive refinances (more than 2X24 months), unless borrower benefit is demonstrated.
- Borrower benefit will be presumed where the borrower receives cash, a lower interest rate or a lower monthly payment as a result of the refinance.
- Borrower's Ability to Repay - Lenders should reasonably ensure a borrower's ability to make mortgage payments, especially for products that have unique or complex features, such as negative amortization or balloon payments.
- Single-Premium Credit Life Insurance Policies for "High Cost" Borrowers without alternative payment options - Lenders should offer borrowers the option of paying for such insurance on a periodic basis. "Credit life" insurance includes unemployment, disability and mortgage life insurance coverage usually sold as part of the mortgage loan transaction.
- Prepayment Penalties without Borrower Benefit - If a loan has a prepayment penalty feature, it should be offset by a rate or fee reduction, fully disclosed and not be charged when the mortgage debt is accelerated as the result of the borrower's default.