Interagency Guidance on Subprime Lending (1999)

D

The Interagency Guidance on Subprime Lending (1999) was issued jointly by five federal regulatory agencies, including the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS). The purpose of the guidance was to establish standards for safe and sound subprime lending practices by financial institutions.

One of the key requirements under the guidance is that the lending policy must be appropriate to the size and complexity of the operation. This means that the financial institution must take into account the size of its lending operation, as well as the complexity of the products and services it offers, when developing its lending policy. The lending policy should be designed to effectively manage the risks associated with subprime lending, and should be consistent with the overall risk management strategy of the institution.

Another requirement under the guidance is that the lending policy must address the types of products offered and those not authorized. This means that the financial institution must clearly define the types of subprime products that it offers, as well as the types of products that are not authorized. The policy should include specific underwriting criteria, such as credit score and debt-to-income ratio requirements, for each type of product. In addition, the policy should establish limits on the volume of each type of product that can be originated.

Finally, the guidance requires that the lending policy must require credit file documentation. This means that the financial institution must obtain and review a borrower's credit file before making a subprime loan. The credit file should include information such as the borrower's credit history, current debt levels, and payment history. The financial institution should use this information to determine the borrower's ability to repay the loan, and to set appropriate loan terms and pricing.

In summary, the correct answer to the question is D, as all of these requirements are included in the Interagency Guidance on Subprime Lending (1999).