Public Hearings Scheduled On Predatory Practices In Home Equity Lending Market - Brief Article

Federal Reserve Bulletin, Sept, 2000

The Federal Reserve Board on July 20, 2000, invited consumers, consumer advocacy organizations, lenders, and other interested parties to participate in public hearings on predatory practices in the home equity lending market.

Invited speakers will participate in panel discussions focused on ways the Board might use its rule-writing authority to curb predatory practices in home equity lending while preserving access to credit for borrowers with less-than-perfect credit ratings. Time will be reserved after the panel discussions for brief statements from other interested parties.

The hearings are being conducted under the authority of the Home Ownership and Equity Protection Act of 1994 (HOEPA), which imposes disclosure requirements and other limits on certain high-cost, home-secured loans. HOEPA was enacted in response to reports of abusive lending practices by unscrupulous lenders making unaffordable home-secured loans to "house-rich but cash-poor borrowers." These cases frequently involved elderly and sometimes unsophisticated homeowners who were targeted for loans with high rates and fees and repayment terms that were difficult or impossible to meet. Often the transactions involved fraud or Unlawful misrepresentations by lenders or brokers.

Since HOEPA's enactment, the volume of home equity lending has grown significantly, and this growth has been accompanied by an increase in subprime lending--lending to borrowers having less-than-perfect credit histories and to other consumers who do not meet the underwriting standards of prime lenders. Because consumers who obtain subprime mortgage loans may have fewer credit options than other borrowers, they may be more vulnerable to unscrupulous lenders or brokers. Accordingly, while certainly not all subprime loans are predatory, the increase in the number of subprime loans has raised concerns about the potential for a corresponding increase in the number of predatory loans.

The hearings will seek public views about home equity lending in general but will focus specifically on ways the Board might use its authority. HOEPA authorizes the Board to adjust the high-cost triggers that could affect the scope of the act's coverage, and it directs the Board to prohibit certain mortgage lending acts and practices if the Board makes the findings required by the statute.

The first hearing is scheduled for Thursday, July 27, 2000, at the Charlotte Branch of the Federal Reserve Bank of Richmond, 530 East Trade Street, Charlotte, N.C. The second is slated for Friday, August 4, 2000, at the Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston, Mass. The third is scheduled for Wednesday, August 16, 2000, at the Federal Reserve Bank of Chicago, 230 South LaSalle Street, Chicago, Ill. The fourth hearing will be held on Thursday, September 7, 2000, at the Federal Reserve Bank of San Francisco, 101 Market Street, San Francisco, Calif.

All hearings are scheduled from 9:00 a.m. to 4:30 p.m. and will begin with panel discussions by invited speakers. Other interested parties may deliver oral statements of five minutes or less at a two-hour "open-mike" period starting at about 2:30 p.m. Written statements of any length may be submitted for the record. Anyone interested in presenting an oral statement is asked to call the Board in advance of the heating at (202) 452-3667.

Written comments may be mailed to Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington, DC 20551 or mailed electronically to regs.comments@federalreserve.gov. Comments are due by September 1, 2000.