Committee on Financial InstitutionsTexas House of Representatives

Impact of House Bill 716 and Mortgage Fraud Task Force

Testimony by:

Robert Bacon, Deputy Commissioner

Texas Department of Banking

January 23, 2008

TEXAS STATE CHARTERED BANKS Texas state chartered banks control approximately 15% of the assets of all types

of federally insured depository institutions operating in the state.

Texas state chartered banks hold a relatively minor percentage of mortgages in their loan portfolios, and very few institutions originate subprime mortgages.

A relatively small number of Texas state chartered banks are involved in originating mortgage loans for sale to a third party or in the secondary market.

Texas state chartered banks are not reflecting an overall high or abnormal number of delinquent mortgage loans.

Prepared by: Texas Department of Banking

House Committee on Financial Institutions January 2008

2

OVERVIEW – TEXAS STATE CHARTERED BANKS COMPARED TO ALL FDIC INSURED

DEPOSITORY INSTITUTIONS

On Book Assets

Texas State Chartered

Banks (1)

TexasAll Institutions

(State & FederalBanks & Savings

Institutions) (1)

NationwideAll Institutions

(State & FederalBanks & Savings

Institutions)

Number of Institutions 327 652 8,560

Total Assets $88.4 Billion $275.9 Billion $12.7 Trillion

Total 1-4 Family Residential Loans $7.3 Billion $46.5 Billion $2.8 Trillion

Past Due 30+/Total 1-4 Family Loans 1.55% 1.96% 1.96%

Other Real Estate Owned for 1-4 Family $28.4 Million $109.2 Million $5.3 Billion

Financial information as of 9/30/2007 and obtained from FDIC Website.(1) Before addition of Comerica Bank, which adds Total Assets of about $60.1 billion effective 11/1/2007.

House Committee on Financial Institutions January 2008

Prepared by: Texas Department of Banking

3

TRENDS – TEXAS STATE CHARTERED BANKS

9/30/2007(1) 12/31/2006(1) 12/31/2002(1)

Number of Institutions 327 322 337

Total Assets $88.4 Billion $83.9 Billion $62.1 Billion

1-4 Family Residential Loans $7.3 Billion $7.1 Billion $6.7 Billion

Past Due 30+/Total 1-4 Family 1.55% 1.50% 1.70%

Other Real Estate Owned 1-4 Family $28.4 Million $19.9 Million $15.5 Million

Financial information as of dates indicated above and obtained from FDIC Website.(1) Before addition of Comerica Bank, which adds Total Assets of about $60.1 billion effective 11/1/2007.

House Committee on Financial Institutions January 2008

Prepared by: Texas Department of Banking

4

TRENDS – NATIONWIDE ALL INSTITUTIONS

(State and Federal, Banks and Savings Institutions)

9/30/2007 12/31/2006 12/31/2002

Number of Institutions 8,560 8,680 9,354

Total Assets $12.7 Trillion $11.9 Trillion $8.4 Trillion

1-4 Family Residential Loans $2.8 Trillion $2.7 Trillion $1.8 Trillion

Past Due 30+/Total 1-4 Family 1.96% 1.54% 1.49%

Other Real Estate Owned 1-4 Family $5.3 Billion $2.9 Billion $2.4 Billion

Financial information as of dates indicated above and obtained from FDIC Website.

House Committee on Financial Institutions January 2008

Prepared by: Texas Department of Banking

5

BANKING DEPARTMENT’S COMMUNICATION WITH TEXAS STATE

CHARTERED BANKSActivity or Item Comments

Commissioner’s Around the State Banker Visits

Meetings in 13 cities around Texas to discuss current issues including HB 716, August – November 2007

Texas Bank Report Article on Mortgage Fraud and HB 716, Issue 2008-1

Regulatory Guidance - 3008 Discusses mortgage fraud disclosure statement and Mortgage Fraud Task Force, Issued on January 14, 2008

Mortgage Fraud Web Page http://www.banking.state.tx.us/dss/mortgagefrd.htm

Discusses mortgage fraud, disclosure statement, and reporting to Mortgage Fraud Task Force

Bank Examination Review Procedures

Incorporated into bank examination review procedures by field staff

House Committee on Financial Institutions January 2008

Prepared by: Texas Department of Banking

6

REPORTS TO FINANCE COMMISSION

The Department regularly keeps the Finance Commission apprised of the subprime mortgage lending issue. State chartered banks are not heavily involved in subprime mortgage lending and therefore have not experienced high past due or foreclosure volumes in mortgage loans. Bankers are concerned with the ancillary effects of subprime mortgage lending nationwide relating to a general tightening of underwriting standards on prime mortgage loans and slowdown in the economy overall. One money service transmitter, licensed by the Department and based in another state, is raising additional capital to compensate for significant losses associated with mortgage related investments.

Bank & Trust Division Memorandum - October 5, 2007

Bank & Trust Division Memorandum - November 29, 2007

Prepared by: Texas Department of Banking

House Committee on Financial Institutions January 2008

7

FEDERAL REGULATORY INITIATIVESItem Comments

Proposed Changes to Regulation ZFederal RegisterJanuary 9, 200812 CFR Part 226Truth in Lending; Proposed Rule

Recommends changes to protect consumers from unfair or deceptive home mortgage lending and advertising practices. The rule would be adopted under the Home Ownership and Equity Protection Act (HOEPA).

Servicing for Mortgage Loans Supplemental InformationFederal Joint Policy StatementFDIC FIL-77-2007

Encourages servicers to consider the borrower’s ability to repay modified obligations.

Servicing for Mortgage LoansFederal Joint Policy StatementFDIC FIL-76-2007

Encourages institutions that service mortgage loans to pursue strategies to mitigate losses while preserving affordable, sustainable mortgage obligations.

Subprime Mortgage LendingFederal Joint Policy StatementFDIC FIL-62-2007

Addresses issues relating to certain adjustable-rate mortgage (ARM) products by establishing prudent safety and soundness and consumer protection standards.

House Committee on Financial Institutions January 2008

Prepared by: Texas Department of Banking

8

SUMMARY Mortgage fraud is a national and state issue that involves thousands of

individuals but affects millions of home owners and citizens. Texas state chartered banks do not originate a high percentage of the

mortgage loans funded in Texas and have not been involved in a material number of mortgage fraud cases.

Reports to the Department about mortgage fraud or potential mortgage fraud are low over the last four years – less than six.

Texas state chartered banks are aware of and Departmental examiners are checking for compliance with obtaining the mortgage fraud notice statement.

Federal initiatives are being formulated to address subprime mortgage lending through stronger loan underwriting and improved consumer disclosures, including advertising.

Prepared by: Texas Department of Banking

House Committee on Financial Institutions January 2008

9

Attachments1. Texas Bank Report, Issue 2008-12. Regulatory Guidance – 3008, Issued January 14, 20083. Department of Banking Mortgage Fraud Website4. Department of Banking Residential Mortgage Fraud Report Form5. Bank & Trust Division Memorandum of October 5, 2007, Subprime and

Nontraditional Mortgage Market Risk6. Bank & Trust Division Memorandum of November 29, 2007, Subprime and

Nontraditional Mortgage Market Risk7. Federal Reserve Bank – Highlights of Proposed Rule to Amend Home Mortgage

Provisions of Regulation Z8. Federal Deposit Insurance Corporation FIL-77-2007, Servicing for Mortgage Loans

Supplemental Information9. Federal Deposit Insurance Corporation FIL-76-2007, Servicing for Mortgage Loans10. Federal Deposit Insurance Corporation FIL-62-2007, Subprime Mortgage Lending

Prepared by: Texas Department of Banking

House Committee on Financial Institutions January 2008

10