A type of unconventional mortgage that focuses on a borrower’s assets to vet repayment ability has drawn a warning from regulators for banks to maintain tight underwriting standards, the Wall Street Journal reported. Asset-depletion loans, also known as asset-dissipation loans, are part of a small but growing subset of the mortgage market that includes subprime loans and other riskier products. They assume borrowers draw from assets to cover a mortgage, rather than just income. They are designed for people who don’t have a conventional paycheck, including retirees or workers in the gig economy, and were traditionally aimed at high-net-worth individuals with portfolios that could be easily converted into cash for mortgage payments. Now the loans are reaching a broader set of borrowers, raising concerns that lenders aren’t properly measuring their risk. “As banks have expanded [asset-depletion underwriting] to qualify other applicants, examiners have noted weaknesses in policies and practices,” Richard Taft, the Office of the Comptroller of the Currency’s top credit-risk official, said in a written statement. He added that banks “should develop and implement policies, processes, and control systems in a manner consistent with safe and sound banking practices.”
