Magazine article American Banker

NHEMA: Studies Make Case for Federal Subprime Rules

Magazine article American Banker

NHEMA: Studies Make Case for Federal Subprime Rules

Article excerpt

The National Home Equity Mortgage Association says two studies it released Thursday -- one on risk-based pricing, the other on prepayment penalties -- bolster the case for a bill to set federal standards for subprime lending.

One of the studies concluded that differences in mortgage rates are attributable to differences in risk. The other concluded that consumers who take out loans with prepayment penalties do get lower rates. Maury Shevin, the trade group's general counsel, said that the "political implications" of the studies are favorable for the Ney-Kanjorski bill, which the industry wants passed to replace the patchwork of state measures on subprime lending.

He said the reports did not have to do with the debate over the fairness of nonprime lending that has erupted in recent months as a result of new Home Mortgage Disclosure Act data.

In both of the studies, Richard F. Demong, a professor at the University of Virginia, and James E. Burroughs, an assistant professor there, analyzed a national database of 961,344 loans made last year.

Mr. Shevin said that by buttressing the idea that subprime lending is "a valuable tool for getting people homes," the risk-based pricing study's findings indirectly make a case for the bill. And the other study's findings on prepayment penalties support keeping such features legal under any federal bill, he said. (The Ney-Kanjorski bill, which was referred last month to a House Financial Services subcommittee, would allow such penalties. …

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