Magazine article Mortgage Banking

Fed Hearing Focuses on Disclosure and Lending Curbs

Magazine article Mortgage Banking

Fed Hearing Focuses on Disclosure and Lending Curbs

Article excerpt

While the Federal Reserve Board appears poised to assert more of its regulatory authority under the Home Ownership and Equity Protection Act of 1994 (HOEPA) to address assertions of abusive mortgage lending, it remains to be seen how much more hands-on the Fed Board will become.

Testifying before the House Financial Services Committee in July, Federal Reserve Chairman Ben Bernanke told members that the Fed plans to exercise its authority under HOEPA to "address specific practices that are unfair or deceptive."

Bernanke's pledge came a month after a day-long public hearing at the Fed's headquarters, where the Fed Board solicited input and heard testimony from a cross-section of industry representatives and consumer advocates, as required under HOEPA.

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Among the several tools at its disposal, the Fed Board is looking closely at two particular remedies--lender disclosures to consumers and rules that prohibit or restrict lending practices, according to Federal Reserve Board Governor Randall S. Kroszner, who chaired the hearing.

"We intend to consider mortgage disclosures comprehensively with an eye to improving their usefulness to consumers, while remaining mindful of the total burden for industry. Our goal is better disclosures, not necessarily more disclosures," said Kroszner.

Much of the discussion at the hearing revolved around prepayment penalties, escrow accounts, stated-income loans and a borrower's ability to repay a loan.

Although some consumer groups called for an outright ban on prepayment penalties, as well as a ban or significant limitations on stated-income loans, industry representatives noted the value of those loan terms to customers when applied to the right borrower.

"We also recognize that disclosures may not always be sufficient to combat abusive practices. Because some bad lending practices may require additional measures, the Federal Reserve will seriously consider how we might use our rule-making authority to address abusive practices without restricting consumers' access to beneficial financing options and responsible subprime credit," said Kroszner. "In addition to improved disclosures, regulations that restrict or prohibit practices that are 'unfair or deceptive' may also be necessary," he said. …

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