Comptroller of the Currency John Dugan on Wednesday called for regulators around the world and in the U.S. to establish uniform mortgage underwriting standards.
He said regulators should require lenders to verify income and assets of borrowers, mandate a meaningful down payment, and ensure borrowers can afford to pay a mortgage at its highest potential payment level, rather than its initial payment.
"Sometimes, when underwriting standards get so out of balance that they cause widespread damage to borrowers and lenders alike, it becomes necessary for regulators to act more prescriptively," Dugan said at a speech before an international banking seminar in Tokyo. "If ever there was a demonstrated need for such an intervention, the searing U.S. mortgage market experience of the last several years fits that bill."
He said the underwriting standards should not be the same for every country. He acknowledged some might find it difficult to set minimum down-payment levels, for example, but he said regulators should still try.
"But just because it's hard doesn't mean we should throw up our hands and avoid establishing a presumptive minimum," Dugan said. "Why? Because we know from bitter experience that, whatever the optimum minimum should be, it should not be zero, or so small that we start down the path once again to the problems that brought us to our knees these last two years."