Financial Update - Volume 19, Number 3 - Reserve Banks Hold Hearings to Examine Mortgage Practices
Vol. 19, No. 3,
Third Quarter 2006
Fed Holds Hearings on
The hearings gathered feedback on the Home Ownership and Equity Protection Act (HOEPA), which directs the Federal Reserve Board of Governors to hold hearings periodically to examine the home equity lending market and assess how effectively existing regulatory and legislative provisions protect consumer interest, particularly low-income consumers. The sessions brought together Fed officials, consumers, consumer advocacy organizations, and lenders.
Predatory lending prompted HOEPA's creation
HOEPA was enacted in 1994 in response to reports of predatory home equity lending practices in underserved markets. HOEPA amended the Truth in Lending Act to impose additional disclosure requirements and limits on certain high-cost, home-secured loans. The Board last held HOEPA hearings in 2000.
The Board's 2006 hearings focused on three topics:
- The impact of HOEPA rules and state and local anti–predatory lending laws on the subprime market;
- Nontraditional mortgage products such as interest-only mortgage loans, payment option adjustable-rate mortgages, and reverse mortgages; and
- The selection of lenders and mortgage products in the subprime mortgage market, which tends to cater to borrowers who have had trouble securing a mortgage because of credit concerns or other reasons.
In Atlanta, predatory lending prompts comments
During the Atlanta hearing, there were three panel discussions followed by a session where members of the public commented about home mortgage lending practices.
The first panel explored the impact of federal and state predatory lending laws as well as consumer and industry views of developments in the subprime mortgage market. A second panel discussed ways consumers can make informed choices in the market for nontraditional mortgages. The final panel examined the importance of disclosures intended to inform consumers about mortgage products. During the public comment session, the majority of the comments focused on concerns about predatory lending.
Transcripts of HOEPA hearings to come
As it did with the 2000 HOEPA hearings, the Board intends to publish transcripts of the 2006 hearings on its Web site.