Department Bulletin C-07-1

To:       ALL INDUSTRIAL LOAN AND THRIFT COMPANIES
            ALL MORTGAGE LENDERS
            ALL MORTGAGE LOAN BROKERS
            ALL MORTGAGE LOAN SERVICERS

Subject:  Guidance on Nontraditional Mortgage Product Risks

Date:    March 30, 2007

The Department of Financial Institutions is issuing this Bulletin for the purpose of announcing that the Department has adopted the Guidance on Nontraditional Mortgage Product Risks (the “Guidance”) that was issued in November of 2006 by the Conference of State Bank Supervisors (“CSBS”) and the American Association of Residential Mortgage Regulators (“AARMR”).  The Guidance substantially mirrors the interagency guidance published by federal banking regulators on October 4, 2006.

At this time, the Department’s adoption of the Guidance is on an informal basis as a guide to “best practices.”  The Department strongly believes that adherence to the Guidance will not only better protect consumers and promote consistent regulation of the residential mortgage market, but will also enhance the overall safety and soundness of the residential mortgage industry.

Through the examination process, the Department will review the operations and practices of licensees and registrants in order to determine how their current operations and practices relate to the Guidance.  After this initial review is completed, the Department will assess the results and make a determination as to what degree of regulatory application at that time is most appropriate to ensure adherence to the Guidance.

During the initial review process, comments from the industry are solicited and welcomed.

The Guidance may be viewed on the Department’s website at http://state.tn.us/tdfi/compliance/nontraditionalmortgageguidance.pdf, or at the CSBS website at   http://www.csbs.org/Content/NavigationMenu/RegulatoryAffairs/FederalAgencyGuidanceDatabase/CSBS-AARMR_FINAL_GUIDANCE.pdf .

Greg Gonzales
Commissioner