On September 17, the Office of the Comptroller of the Currency (OCC), which regulates national banks and federal savings associations (collectively, banks), issued guidance on appropriate credit risk management practices for investor-owned, one- to four-family residential real estate (IORR) lending where the primary repayment source for the loan is rental income. According to the OCC, “this type of lending has increased because of a variety of economic factors. This bulletin is intended to promote consistent risk management practices for IORR lending and to summarize the applicable requirements for regulatory capital and call reports for IORR lending.” In issuing the guidance, the OCC noted that “some banks manage IORR loans in a similar manner to owner-occupied one- to four-family residential loans. The credit risk presented by IORR lending, however, is similar to that associated with loans for income-producing commercial real estate (CRE). Because of this similarity, the Office of the Comptroller of the Currency expects banks to use the same types of credit risk anagement practices for IORR lending that are used for CRE lending.”
The guidance sets out the OCC’s expectations in several key areas including credit risk management, loan underwriting standards, IORR identification and portfolio monitoring, loan losses, risk assessment and rating systems, and regulatory reporting and risk-based capital treatment.