Federal regulators unveiled guidelines Wednesday for subprime lending.
The banking agencies urge subprime lenders to boost capital levels, hire loan officers with experience in the subprime market, adopt collateral and appraisal requirements tailored to these types of loans, and implement extensive monitoring of subprime portfolios.
The policy also details how examiners will review subprime programs. They will evaluate if management understands the risk of the business, if the bank has the financial capacity to make high-risk loans safely, and if loan quality standards are followed.
"Institutions should recognize the additional risks inherent in subprime lending and determine if these risks are acceptable and controllable," the Federal Reserve Board, Comptroller of the Currency, Federal Deposit Insurance Corp., and Office of Thrift Supervision said.