To help bankers run effective reinvestment programs, the Office of the Comptroller of the Currency is creating best-practices guidelines for community development lending.

The guidelines will focus on the risk management strategies banks use to monitor low-income lending initiatives, Comptroller Eugene Ludwig said Friday.

The guidelines also will include examples of "well-structured, well- managed" reinvestment programs banks have used successfully, Mr. Ludwig explained during a conference sponsored by the Fannie Mae Foundation.

Industry officials had mixed reactions to the Comptroller's plans.

Judith Knight, director of American Bankers Association's center for community development, said best-practices guidelines will help institutions that are just starting to create low-income loan programs.

"This is a great idea," she said "We certainly need to try to share information among our bankers about practices that seem to be working well."

But Robert Rowe, regulatory counsel to the Independent Bankers Association of America, said guidelines often create compliance headaches for banks.

"I understand the concept of having guidelines and the motivation behind them is certainly admirable," Mr. Rowe said. "But you may be creating another burden for the banks. It is a two-edged sword."

The Comptroller's Office will begin meeting with bankers and community groups shortly to discuss the guidelines, which the agency expects to issue by year's end.

Mr. Ludwig also said the agency recently has seen higher delinquency rates in some community development loan portfolios. The troubled programs often extend credit to borrowers with higher loan-to-value ratios, lower- than-normal down payments, and credit history problems, he said.

"It would be quite a terrible mistake to overreact to these uneven results," he added. The problems affect a small minority of the industry, he noted.

The agency will mail national banks a letter advising them of the default rate problem, he said. The letter also will state that these programs must be based on "safe and sound" banking practices.

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