Volume 10, Number 7

Nontraditional Mortgage Product Risks

It is the expectation of the Department of Financial Institutions that all licensees comply with the
October, 4, 2006 “Final Guidance on Nontraditional Mortgage Product Risks” (“Guidance”) issued by
the federal regulatory agencies to address the risks posed by nontraditional residential mortgage
products. Also known as “alternative” or “exotic” mortgage loans, they include “interest-only”
mortgages and “payment option” adjustable-rate mortgages. These products allow borrowers to
exchange lower payments during an initial period for higher payments later.
The Guidance is intended to promote consistent regulation in the mortgage market and to clarify how
residential mortgage providers can offer nontraditional mortgage products in a way that clearly discloses
the risks borrowers may assume. These products are offered to a wide spectrum of borrowers who may
not otherwise qualify for a similar-size mortgage under traditional terms and underwriting standards.
While many of these features exist in other adjustable-rate mortgage products, the concern is elevated
with nontraditional products because of the lack of principal amortization and the potential for negative
amortization. In addition, institutions are increasingly combining these loans with other features that
may compound risk (“risk layering”). These features include making simultaneous second-lien
mortgages and relying on reduced or no documentation in evaluating an applicant’s creditworthiness.
Licensees should read and familiarize themselves with the Guidance and carefully scrutinize their risk
management processes, policies, and procedures in this area. Institutions with sound underwriting,
adequate risk management, and acceptable portfolio performance will not be subject to criticism merely
for offering such products.
Consumer Information on Nontraditional Mortgage Loans
The federal bank, thrift, and credit union regulatory agencies have published a new resource that can
help consumers make more informed choices when considering nontraditional mortgage loans. InterestOnly Mortgage Payments and Payment-Option ARMs – Are They for You? features a glossary of lending
terms, a mortgage shopping worksheet, and a list of additional information sources. This information
can help consumers, whether buying a house or refinancing a mortgage, decide if an interest-only
mortgage (an I-O mortgage) or an adjustable- rate mortgage (ARM) with the option to make a minimum
2 Monthly Bulletin January 2007
payment (a payment-option ARM) is right for them. The publication stresses the importance of
understanding key mortgage loan terms, and warns of the risks consumers may face.
The interagency information is available on each agency’s web site or on the DFI website. A PDF
(Portable Document Format) version is provided so that consumer groups, financial institutions,
agencies, and other organizations can download and print copies for distribution to their clients and
customers. It includes a space on the back panel for organizations to provide their own contact
information. The web addresses are:
http://www.federalreserve.gov/pubs/mortgage_interestonly/default.htm
http://www.fdic.gov/consumers/consumer/interest-only/index.html
http://www.occ.treas.gov
http://www.ncua.gov/Publications/Index.htm
http://www.ots.treas.gov
Single copies of the brochure are available free of charge from:
• Publications, Mail Stop 127, Federal Reserve Board, 20th and C Streets, N.W., Washington, DC
20551; 202-452-3245
• FDIC Public Information Center, 3501 North Fairfax Drive, Room E-1002, Arlington VA
22226; 877-ASK-FDIC, 703-562-2200
Warning Notice – Fraudulent Cashier’s Check
Activity
Recently, DFI has observed an upsurge in the use of fraudulent cashier’s checks. Typical scenarios
involve unwitting consumers who receive fraudulent cashier’s checks in payment for goods they are
selling via Craigslist or E-Bay. Sometimes the checks are for more than the purchase price, with a
request to wire the difference back to the buyer. In other scenarios, consumers receive a letter informing
them that they have received an unexpected windfall. A large denomination cashier’s check is enclosed
and the consumer is instructed to deposit the check and wire a specified amount to the remitter for
“processing fees”. In each case, the consumer, who believes the check to be good, deposits it into his or
her account and, if requested, wires funds as instructed by the remitter. Some time later, the item is
returned as uncollectible and the amount of the check is deducted from the consumer’s account, creating
a financial hardship for the consumer and an angry customer who may blame the financial institution for
the loss.
DFI encourages its licensees to avoid these scenarios by educating their customers to be smart
consumers. Many consumers do not understand the difference between when funds become available
and when checks finally clear. Cashier’s checks have developed a reputation of being good on face
because they are obligations of a financial institution and not an individual, consequently consumers are
more likely to let down their guard and accept a fraudulent check when it purports to be an official item.
The Office of the Comptroller of the Currency (OCC) has issued a Bulletin and a Consumer Advisory in
which it outlines some practical steps for national banks to take with regard to the growing problem of
cashier’s check fraud, but these steps apply equally to all financial institutions that offer deposit
relationships to the general pubic. DFI applauds the OCC for taking the lead on this important issue,
and we recommend that state-chartered banks and credit unions alike study these releases to learn how
they can help their customers be smart and responsible consumers.
3 Monthly Bulletin January 2007
Transmitter of Money Abroad Voluntarily
Surrenders its California Operations
Pan Asian Currency Exchange Corporation (“Pan Asian”), has voluntarily surrendered its California
operations effective January 3, 2007.
Pan Asian is now an agent of Maniflo Money Exchange, Inc. (“Maniflo”). Contact information for Pan
Asian: Ms. Anita Papa, 1939 Alum Rock Avenue, San Jose, CA 95116, USA; 408-251-1250. Contact
information for Maniflo: Mr. Florino Agpaoa, 1442 Highland Avenue, National City, CA 91950-4624,
USA; 619-474-1547.
Consumers who wish to file a claim should call the DFI Consumer Information Desk’s toll free number,
1-800-622-0620 or email consumer@dfi.ca.gov. Consumer complaint forms in English and Spanish are
available at http://www.dfi.ca.gov/forms/consumer/consumer.asp
DFI Encourages Licensees to Participate in VITA
As the tax season begins, the Department of Financial Institutions (DFI) is encouraging its licensees to
participate in the Volunteer Income Tax Assistance (VITA) program. Sponsored by the Internal
Revenue Service (IRS), VITA offers free preparation of income tax returns for low- and moderateincome individuals.
Participation in VITA programs offers banks the potential for favorable consideration under Community
Reinvestment Act (CRA) rules and opportunities to provide financial education and open new accounts
for underserved individuals. Under CRA regulations, financial institutions can receive favorable
consideration in the investment test (12 CFR 345.12(t) & 345.23) or service test (12 CFR 345.12(i) &
345.24) for qualifying VITA-related activities.
By participating in VITA credit unions can assist their members to qualify for the Earned Income Tax
Credit (EITC). Members receive free tax preparation service and free electronic filing with direct
deposit options at credit unions.
Financial institutions can participate in the VITA program in various ways, including by:
• Notifying staff of opportunities to be VITA volunteers;
• Marketing the EITC and VITA program to bank customers;
• Co-sponsoring a VITA site or coalition;
• Hosting a VITA site at a bank branch;
• Offering taxpayers the opportunity to start the process of opening a bank account at the VITA
site, whether by phone or with staff on-site;
• Partnering with the local VITA program to make financial education available to consumers at
VITA sites; and
• Offering banking products responsive to the needs of VITA clients.
Additionally, new IRS rules allow taxpayers who receive their refunds via direct deposit to split the
money into as many as three different bank accounts instead of just one.
4 Monthly Bulletin January 2007
To learn more about how your financial institution can partner with the IRS email partner@irs.gov or
visit the IRS Web site.
Commercial Bank Activity
New Bank
Commerce Bank of Temecula Valley
25220 Hancock Avenue, Murrieta, Riverside County
Correspondent: James H. Avery
The Avery Company, LLC
P.O. Box 3009
San Luis Obispo, CA 93403
(805) 544-5477
Filed: 1/2/07
Focus Business Bank
10 Almaden Boulevard, Suite 150, San Jose, Santa Clara County
(408) 200-8701
(408) 200-8797 (fax)
Officers: Richard L. Conniff, President and Chief Executive Officer
Michael T. Namba, Chief Financial Officer
Kenneth A. Corsello, Chief Credit Officer
Capitalization : $27,500,000.00
Website: http:www.focusbusinessbank.com
Opened: 1/16/07
Merger
Legacy Bank, N.A., Campbell, to merge with and into United Security Bank, Fresno
Approved: 1/29/07
The Summit National Bank, Atlanta, Georgia, to merge with and into United Commercial Bank, San
Francisco, California
Effected: 12/29/06
Acquisition of Control
The Industrial Bank of Taiwan Co., Ltd. and IBT Holdings Corp., to acquire control of EverTrust Bank
Filed: 12/26/06
5 Monthly Bulletin January 2007
Premium Finance Company Activity
New Premium Finance Company
American Global Finance Corporation
2501 E. Chapman Ave., Fullerton, Orange County
Approved: 1/9/07
AMGRO Premium Financing, Inc.
1410 Rocky Ridge Road, Roseville, Placer County
Approved: 1/18/07
Mid Continent Premium Finance, Inc.
6046 Cornerstone Court West, City and County of San Diego
Approved: 1/18/07
Premium Financing Services, Inc.
5480 Baltimore Drive, La Mesa, San Diego County
Approved: 1/9/07
San Joaquin Premium Finance, Inc.
5480 Baltimore Drive, La Mesa, San Diego County
Withdrawn: 1/5/07
Westport Financial Services, Inc.
2501 E. Chapman Avenue, Fullerton, Orange County
Approved: 1/24/07
Acquisition of Control
International General Agency, Inc., to acquire control of Advance Premium Finance, Inc.
Filed: 1/5/07
Approved: 1/19/07
Voluntary Surrender of License
Allegiance Premium Finance Company, Inc.
Effected: 1/18/07
Blackwater Premium Finance of CA, Inc.
Effected: 1/25/07
Capital Payment Plan of California, Inc.
Effected: 1/25/07
FPCAL, Inc.
Effected: 1/9/07
Foreign (Other State) Activity
6 Monthly Bulletin January 2007
New Facility
Manufacturers and Traders Trust Company (Facility – Insured Bank)
• 1555 S. Palm Canyon Drive, Palm Springs, Riverside County
• 114 Pacifica, Irvine, Orange County
Opened: 1/2/07
Credit Union Activity
Field of Membership
Seven credit unions received approvals to add 19 new fields of membership during December 2006.
Variance
One credit union received approval for one request for variances to sections of the California Code of
Regulations during December 2006.
Merger
Raincross Credit Union, Riverside, to merge with and into, Visterra Credit Union, Moreno Valley
Filed: 12/8/06
Approved: 1/3/07
MICHAEL A. KELLEY
Commissioner of Financial Institutions
Bulletin for Month ended
January 2007, issued pursuant
to Financial Code section 258
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