August 6, 2007
SR 07-12 / CA 07-3: Statement on Subprime Mortgage Lending
In late June, the federal financial regulators announced a final rule on subprime mortgage lending to address issues and questions related to certain adjustable-rate mortgage (ARM) products marketed to subprime borrowers. SR 07-12 / CA 07-3, issued on July 24, 2007, provides additional information on the final statement, including the scope, risk management practices, workout arrangements, predatory lending considerations, consumer disclosure practices, and supervisory review associated with the Statement on Subprime Mortgage Lending.
Fed Studies Fair Value Calculations for Commercial Loans
The Federal Reserve on July 24 published a study on the use of fair value in the primary financial statements for held-to-maturity bank loans. The study was based on in-depth discussions with seven large, internationally active banks on their use of fair value for held-to-maturity commercial loans and commitments. The study found that five of the banks measured a substantial portion of their commercial or wholesale loan portfolio credit exposures at fair value. The credit exposures included both loans and undrawn loan commitments. Two banks in the survey did not use fair value for their loans for risk or portfolio management purposes. These banks felt that fair value measurement was not useful for the risk management of their loan portfolios. The study described the valuation methods used by the banks and considered the roles of market price sources and modeling in fair value estimations.