February 13, 2007
The Honorable Christopher J. Dodd The Honorable Wayne Allard
United States Senator United States Senator
448 Russell Senate Office Building 521 Dirksen Senate Office Building
Washington, DC 20510 Washington, DC 20510
The Honorable Jack Reed The Honorable Jim Bunning
United States Senator United States Senator
728 Hart Senate Office Building 316 Hart Senate Office Building
Washington, DC 20510 Washington, DC 20510
The Honorable Charles E. Schumer
United States Senator
313 Hart Senate Office Building
Washington, DC 20510
Dear Chairman Dodd, Senator Reed, Senator Schumer, Senator Allard, and Senator
Bunning:
Thank you for your letter dated December 7, 2006 regarding subprime hybrid adjustable
rate mortgages (ARMs), such as 2-28 ARMs. The guidance developed by the Conference
of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage
Regulators (AARMR) does not cover fully amortizing loans, including the 2-28 ARMs.
We understand that you have received a response from the federal banking agencies on this
issue. CSBS was disappointed that we were not included in the response. I would like to
take this opportunity, however, to describe our views on this subject and how states are
preparing to address this issue.
Proper supervision of the residential mortgage industry requires full coordination and
cooperation between the states and the federal banking agencies. During our evaluation of
the interagency guidance and the development of our parallel guidance, CSBS identified
several lending practices and product characteristics that were inherent across a wide range
of residential mortgage products, not just 2-28 ARMs. We believe these practices and
characteristics need to be addressed in a principles-driven manner. The pace of product
innovation in the mortgage industry will make any product-specific guidance obsolete
almost as soon as it is issued.
CONFERENCE OF STATE BANK SUPERVISORS
1155 Connecticut Ave., NW, 5th Floor • Washington DC 20036-4306 • (202) 296-2840 • Fax: (202) 296-1928
At the time the guidance was issued by CSBS and AARMR, the stated CSBS position was:
The principles of the guidance could reasonably be applied to all consumer credit
products and are excellent standards with dealing with consumers. Consumers
deserve the opportunity to fully understand the features of their financial products.
The states, through CSBS, are working with the federal agencies with the goal of
developing sound principles that can be consistently applied among the states and across
the entire financial system.
Best personal regards,
Neil Milner
President and CEO