Financial Update (July-Septemer 1997)

Home-Equity Lending Takes Center Stage

H ome-equity lending issues, which are currently under consideration by the Federal Reserve Board of Governors, were topics of discussion at a recent public hearing for consumer groups and lenders at the Atlanta Fed.

The hearing was one of three held by the Fed as part of its directive under the provisions of the Home Ownership Equity Protection Act (HOEPA) of 1994. HOEPA amended the Truth in Lending Act to impose additional disclosure requirements and substantive limitations on certain closed-end mortgage loans with rates or fees above a certain percentage or amount.

The hearing focused on written and oral statements about issues, including the effects of HOEPA on homeowners seeking home-equity credit; the identification of the specific mortgage product or categories of mortgages that might be considered for exemption; the acts or practices the Board might consider prohibiting; the appropriateness of the act's existing exemption for open-end home-equity loans; and the adequacy of current disclosures related to reverse mortgages.

In addition to a discussion of home-equity lending issues, the hearing elicited views from the public and a panel of experts made up of consumer groups and lenders about broader truth-in-lending issues under Board examination, primarily how finance charge disclosure could more accurately reflect the cost of credit. Specific issues addressed included the feasibility of treating all costs associated with a credit transaction as part of the finance charge and improving the annual percentage rate disclosure to make it more meaningful to consumers.

After evaluating testimony, the Board can leave the act as is, make a recommendation to Congress to make statutory changes to HOEPA or implement changes that do not require congressional action. A recommendation is expected later this year.

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