Magazine article American Banker

Viewpoint: Mortgage Hearing Shows Need for Better Regulation

Magazine article American Banker

Viewpoint: Mortgage Hearing Shows Need for Better Regulation

Article excerpt

On June 16, 2006, the Federal Reserve Board of Governors came to San Francisco to hold hearings as part of its oversight duties under the Home Ownership and Equity Protection Act.

The hearing began with lively panel discussions relating to nontraditional mortgage products, informed consumer choice, and reverse mortgages. Governor Mark Olson and Fed staff members were engaged in the issues and offered thoughtful questions.

Consumer and community group panelists said that abusive practices are increasing. Specifically, unscrupulous brokers and lenders aggressively push nontraditional mortgage products that borrowers don't understand and can't afford; lending disparities trap people of color, immigrants, and seniors in more costly home loans; and growing delinquencies and foreclosures allow a cottage industry of scammers to steal the last remaining equity from consumers who are in the gravest stages of distress.

One issue that emerged was the pervasive problem of brokers and loan officers selling loans in languages other than English. These negotiations are cemented with English-only documents that borrowers do not understand. The documents often include different terms than what borrowers were promised, and they sometimes come with pressure by brokers and loan officers to just sign and stop asking questions.

The message from consumer groups is that the Fed needs to act. A hopeful precedent comes from the 2000 hearings, where the Fed amended HOEPA's implementing regulations. Community groups at the San Francisco hearing called on the Fed to:

* Lower triggers and include yield-spread premiums and prepayment penalties in the points-and-fees test.

* Require critical documents to be translated into the languages used during loan negotiations, as California law requires.

* Expand the Home Mortgage Disclosure Act reporting requirements to better identify discriminatory patterns by including data such as credit scores, loan-to-value ratios, borrower ages, and whether a loan is a nontraditional mortgage product.

* Require pretransaction, certified home loan counseling, and develop a suitability standard.

The Fed wisely sought testimony on the impact that nontraditional mortgage products are having on consumers. …

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