The banking regulators reissued guidance on Tuesday that requires institutions to monitor all credit quality indicators for mortgage borrowers, specifically citing junior liens as a potential problem.

“Amidst continued uncertainty in the economy and the housing market, federally regulated financial institutions are reminded to monitor all credit quality indicators relevant to credit portfolios, including junior liens,” according to the six-page guidance released by the Federal Reserve Board.

The Fed, along with the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the National Credit Union Administration reissued the guidance on allowances for loan and leases losses estimation practices related to loans and lines of credit secured by junior liens on one- to four-family residential properties.

Junior liens include second mortgages and home equity lines of credit obtained by homeowners.

The guidance also reiterated key concepts included in generally accepted accounting principle (GAAP) and existing supervisory related to ALLL and loss estimation practices.

Regulators also reminded firms to abide by “appropriate risk-management principles in managing junior lien loans and lines of credit.” 

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