Here's a chance to offer your two cents in the ongoing predatory lending debate on the federal level, where regulations haven't always measured up.
The hearings are designed, in part, to examine some of federal regulatory shortcomings and perhaps strengthen federal law that has jurisdiction over what could be your largest financial endeavor.
In early May, the Federal Reserve Board invited consumers, along with consumer advocates, lenders and others interested, to participate in four public hearings about the home equity lending market.
Hearing objectives are three fold:
HOEPA, to some extent, protects consumers from exorbitantly high home equity mortgage costs.
Enacted in 1994, in response to reports of predatory home equity lending practices in under served markets, HOEPA amended the Truth in Lending Act (TILA) to impose additional disclosure requirements and limits on certain high-cost, home-secured loans.
HOEPA also mandates that the Board periodically hold public hearings to examine the home equity lending market and related regulatory and legislative provisions designed to protect consumers, particularly low-income consumers. The last hearings in 2000 resulted in amendments to Regulation Z which implements HOEPA and TILA provisions. The revisions took effect in 2002.
- To develop educational materials to help consumers make informed decisions about mortgages.
- To identify mortgage lending market issues that require additional research.
To those ends, the hearings will focus on three topics:
- Predatory lending and the impact HOEPA rules, as well as state and local anti-predatory lending laws, have on the subprime market.
- Nontraditional mortgages such as interest-only mortgages and payment option adjustable rate mortgages, as well as reverse mortgages
- How consumers select lenders and mortgage products in the subprime mortgage market.
Predatory lending has been hotly debated for years, often in terms of federal laws being too weak to stem the tide. That's forced many states to pass their own laws, some of them tougher than federal regulations.
Responsible Lending's 31-page "The Best Value In The Subprime Market: State Predatory Lending Reforms" reported that, in most cases, state laws were taking up the anti-predatory lending law slack left by federal regulations and doing so without reducing the level of subprime loans.
Predatory lending practices are a malignant outgrowth of the otherwise useful subprime residential mortgage sector. Subprime loans are generally more expensive than prime loans, because they are intended for borrowers who pose a greater risk to lenders, typically because of the lack of credit, previous credit problems or other conditions. The higher costs help offset lenders' added risk.
Without the subprime segment, some borrowers would have been locked out of the American Dream, especially during the recent residential real estate market boom of ever higher home prices.
Unfortunately, in numerous class action suits, state-filed suits, independent studies and consumer complaints, too much subprime lending has became predatory with exorbitantly high costs, penalties and other financially abusive features often directed at specific groups, including minorities, older, low-income borrowers and others who can least afford the added cost. The most blatant predatory lending tactics are designed specifically to separate home owners from their money or their homes or both.
In the second largest state or federal mortgage consumer protection agreement in history, the nation's largest subprime lender Ameriquest Mortgage Co. agreed in January to a $325 million settlement to be split among 49 states and the District of Columbia. The company denied any wrong doing after being charged with using predatory lending tactics.
In addition to Regulation Z amendments and the newly announced hearings, federal regulators have been busy scrutinizing numerous types of risky mortgages.
Since the end of March, federal agencies have been sorting through comments regarding "Interagency Guidance on Nontraditional Mortgage Products" which was proposed to reduce risk levels associated with some markets' preponderance of popular interest-only, payment-option, piggy-back, no-, low-down payment and certain adjustable rate mortgages (ARMs) known as "nontraditional" loans.
In a similar effort to curtail the growth of troublesome home equity loans in spring of 2005, the same group of federal agencies issued "Credit Risk Management Guidance For Home Equity Lending" -- which had little if any effect.
For the Federal Reserve's latest round of hearings, public comments are due by August 15, 2006. Open hearings are scheduled from 8:30 a.m. to 4 p.m., Wednesday, June 7, 2006, at the Federal Reserve Bank of Chicago; Friday, June 9, 2006, at the Federal Reserve Bank of Philadelphia; Friday, June 16, 2006, at the Federal Reserve Bank of San Francisco; and Tuesday, July 11, 2006, at the Federal Reserve Bank of Atlanta.
You can submit comments, identified by "Home Ownership and Equity Protection Act Hearings Docket No. OP-1253," in person, by email, postal mail, fax and otherwise by following instructions on the board's "Proposals for Comment" webpage.
