PREDATORY LENDING GUIDELINES
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.
