Federal Deposit Insurance Corp. Chairman Sheila Bair said policymakers should do even more to bolster mortgage underwriting.
In a cable news interview late Wednesday, Bair said the Dodd-Frank law and a 2008 Federal Reserve Board rule have improved lending standards.
But she suggested rules could still be applied more broadly, targeting both high- and low-cost loans.
"The focus of the Fed's current rules" authorized under the Home Ownership and Equity Protection Act, "are more on the higher-cost loans and there are some good standards that are incorporated into Dodd-Frank," she said. "But I think we can do a better job of having consistent strong lending standards across the board for both bank and nonbank mortgage originators.
"It doesn't have to be complicated, really. Just make sure we document income, there's a bit of a down payment and that the borrower does have the capacity to repay. … So just some common sense standards but applying to everyone."
Bair also cited findings suggesting FICO scores may not be as reliable as other factors to assess payment ability.
"There has been some overreliance on FICO's," she said. "The correlation between FICO's and loan performance is somewhat less definitive than it is with loan-to-values and healthy down payments. … There may be other payment histories that you can look at and still have a prudent underwriting. So perhaps there may be some justification for more flexibility with FICO's."— Joe Adler
