Committee on Financial Institutions Texas House of Representatives

Committee on Financial Institutions Texas 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 q Texas state chartered banks control approximately 15% of the assets of all types of federally insured depository institutions operating in the state. q Texas state chartered banks hold a relatively minor percentage of mortgages in their loan portfolios, and very few institutions originate subprime mortgages. q 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. q 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 Texas State Chartered Banks (1) Texas All Institutions (State & Federal Banks & Savings Institutions) (1) Nationwide All Institutions (State & Federal Banks & Savings 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 1. 55% 1. 96% $28. 4 Million $109. 2 Million $5. 3 Billion On Book Assets Number of Institutions Past Due 30+/Total 1 -4 Family Loans Other Real Estate Owned for 1 -4 Family 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. Prepared by: Texas Department of Banking House Committee on Financial Institutions January 2008 3

TRENDS – TEXAS STATE CHARTERED BANKS 9/30/2007(1) 12/31/2006(1) 12/31/2002(1) 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 1. 55% 1. 50% 1. 70% $28. 4 Million $19. 9 Million $15. 5 Million Number of Institutions Past Due 30+/Total 1 -4 Family Other Real Estate Owned 1 -4 Family 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. Prepared by: Texas Department of Banking House Committee on Financial Institutions January 2008 4

TRENDS – NATIONWIDE ALL INSTITUTIONS (State and Federal, Banks and Savings Institutions) 9/30/2007 12/31/2006 12/31/2002 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 1. 96% 1. 54% 1. 49% $5. 3 Billion $2. 9 Billion $2. 4 Billion Number of Institutions Past Due 30+/Total 1 -4 Family Other Real Estate Owned 1 -4 Family Financial information as of dates indicated above and obtained from FDIC Website. Prepared by: Texas Department of Banking House Committee on Financial Institutions January 2008 5

BANKING DEPARTMENT’S COMMUNICATION WITH TEXAS STATE CHARTERED BANKS Activity 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 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 http: //www. banking. state. tx. us/dss/mortgagefrd. htm Prepared by: Texas Department of Banking House Committee on Financial Institutions January 2008 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. q Bank & Trust Division Memorandum - October 5, 2007 q Bank & Trust Division Memorandum - November 29, 2007 Prepared by: Texas Department of Banking House Committee on Financial Institutions January 2008 7

FEDERAL REGULATORY INITIATIVES Item Comments Proposed Changes to Regulation Z Federal Register January 9, 2008 12 CFR Part 226 Truth 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 Information Encourages servicers to consider the borrower’s ability to repay modified obligations. Servicing for Mortgage Loans Encourages institutions that service mortgage loans to pursue strategies to mitigate losses while preserving affordable, sustainable mortgage obligations. Subprime Mortgage Lending Addresses issues relating to certain adjustablerate mortgage (ARM) products by establishing prudent safety and soundness and consumer protection standards. Federal Joint Policy Statement FDIC FIL-77 -2007 Federal Joint Policy Statement FDIC FIL-76 -2007 Federal Joint Policy Statement FDIC FIL-62 -2007 Prepared by: Texas Department of Banking House Committee on Financial Institutions January 2008 8

SUMMARY q Mortgage fraud is a national and state issue that involves thousands of individuals but affects millions of home owners and citizens. q 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. q Reports to the Department about mortgage fraud or potential mortgage fraud are low over the last four years – less than six. q Texas state chartered banks are aware of and Departmental examiners are checking for compliance with obtaining the mortgage fraud notice statement. q 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

Attachments 1. 2. 3. 4. 5. Texas Bank Report, Issue 2008 -1 Regulatory Guidance – 3008, Issued January 14, 2008 Department of Banking Mortgage Fraud Website Department of Banking Residential Mortgage Fraud Report Form Bank & Trust Division Memorandum of October 5, 2007, Subprime and Nontraditional Mortgage Market Risk 6. Bank & Trust Division Memorandum of November 29, 2007, Subprime and Nontraditional Mortgage Market Risk 7. Federal Reserve Bank – Highlights of Proposed Rule to Amend Home Mortgage Provisions of Regulation Z 8. Federal Deposit Insurance Corporation FIL-77 -2007, Servicing for Mortgage Loans Supplemental Information 9. Federal Deposit Insurance Corporation FIL-76 -2007, Servicing for Mortgage Loans 10. Federal Deposit Insurance Corporation FIL-62 -2007, Subprime Mortgage Lending Prepared by: Texas Department of Banking House Committee on Financial Institutions January 2008 10