First let me begin by saying that I am new to the bank I'm currently working for. Just found a checklist that was used in the past to review MBS loan pools. I would like some feedback on whether or not these guidelines are good to apply on a going forward basis.

1. Must be located in AA. (clearly this applies to obtain credit)
2. Borrower income must be low or moderate (clearly this applies to obtain credit)
3. Property must be 1-4 family owner-occupied.
4. LTV cannot exceed 90% on refi or equity transactions.
5. DTI cannot exceed 43%
6. Must have written assurance that the loans are written according to the GSE guidelines.

Darn, I was hoping to get some feedback on items 3-5.

We rely heavily on MBS loan pools for inv. credit. All of our MBS loan pools consist of only 1-4 family owner-occupied dwellings, though I don't think it is a requirement. I have never heard that the underlying loans must meet 4-5 either. Perhaps that is an internal requirement.

3 I can see. That is what is usually in the pools. The last two seem very bank specific.

The Equity limits would not apply to investments (so the bank would not be tracking high ltv), but may be attempting to stay far away from subprime, or just wants a very clean msb pool.

Thanks for the feedback. Unfortunately, I don't know the reasoning for items 3-5 and there is no one here that knows.

I can only guess that the reasons for items:

Item 3: 1-4 family instead of multi-family may be because of the differences in underwriting for rent rolls vs. income. However, purchases of LMI multi-family pools can still qualify for CRA credit - but perhaps because the analysis and underwriting of those pools is so different from 1-4, no one wants to try and explain them to a Safety and Soundness examiner. Don't forget that your CRA investments will also be reviewed by Safety and Soundnss for liquidity and interest rate risk, etc.

Item 4: This may be an attempt to avoid predatory loans where all of the equity is stripped during the refi. Again, there may be a Safety and Soundness component that a pool of loans that have some borrower equity would be more stable than underwater deals.

Item 5: Again, staying away from predatory loans and for Safety and Soundness concerns that your MBS pool might be comprised of NINJA loans. (No income, no job, applicants)

When I used to review MBS pools, my biggest frustration was the lack of information that was provided with respect to points, APR and overall DTI. When I tried to get the information, I was told time and again, "we don't capture that data and there is no way to do so."

And not long after the market collapsed.

I have mentioned in the past that at least one bank had its CRA rating downgraded because of an investment by the finance area in a subprime MSB pool. Because fair lending can impact the CRA rating, it is something to watch.

A key item is to know the source of the loans. Good sources provide every element on the borrowers. For CRA MSBs, it is good to be able to pick your loans for a custom pool.