CUNA Regulatory Comment Call

May 18, 2006

Home Equity Lending Hearings


Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at and to Senior Assistant General Counsel Jeff Bloch at; or mail them to Mary and Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. If commenting directly to the Fed, you must refer to Docket No. OP-1253. You may also contact us at 800-356-9655, ext. 6032, if you would like more information about these hearings or you may obtain additional information on the Internet at the following address:


Congress enacted HOEPA in 1994 out of concern about predatory home equity lending practices in underserved areas. HOEPA requires additional disclosures and imposes restrictions for “high cost” mortgages, defined as those in which the interest rate on a first lien mortgage is eight percentage points above comparable Treasury securities or ten percentage points above comparable Treasury securities for second lien mortgages. “High cost” mortgages also include those in which the total points and fees exceed the greater of $528 or eight percent of the loan amount.

HOEPA requires the Fed to hold public hearings periodically on the home equity lending market, including the adequacy of existing laws and rules for protecting the interests of consumers, specifically low income consumers. The Fed last held hearings in 2000, which focused on the Fed’s ability to use its rulemaking authority under HOEPA to address abusive lending practices.


The following are the four objectives of these hearings:

The following topics will be discussed at the hearing:

Topic 1 – Predatory Lending: The Impact of HOEPA and State and Local Predatory Lending Laws

The Fed is interested in how the HOEPA rules have improved consumers’ understanding of their mortgage terms and have curbed abusive practices, while preserving access to subprime credit. The Fed is also interested in gathering information about any new abusive practices that have developed since the 2000 hearings and other practices that still raise concerns, such as the amount and prevalence of prepayment penalties, as well as whether creditors make loans with the proper evaluation of the borrower’s repayment ability.

The Fed also wants to gather information about how state and local laws have affected abusive lending practices and access to credit, especially those that have been enacted after the 2000 hearings that are more restrictive than the federal HOEPA requirements. The Fed wants to asses whether these laws have been effective in protecting consumers from abusive lending, as well as whether they have affected access to legitimate subprime loans.

For this topic, the Fed has requested comments in response to the following questions:

Topic 2 – Nontraditional Mortgage Loans and Reverse Mortgages

Nontraditional mortgage loans - In recent years, rising home prices have led to an increase in “nontraditional” mortgage loans, in which consumers have the option of paying only the interest on the loan for a certain period of time or paying less than the interest owed, resulting in negative amortization. Some institutions have combined these loans with other practices, such as making simultaneous second-lien mortgages and allowing for reduced documentation.

The Fed and other regulators are concerned that these loans will lead to defaults for marginally qualified borrowers if housing prices subside or when the interest rates on these loans increase substantially. Some believe that more disclosures are needed for these types of loans.

The Fed, the National Credit Union Administration, and the other federal financial institution regulators have recently proposed guidance in an effort to address these concerns. The link below provides additional information about the proposed guidance

For nontraditional mortgage loans, the Fed has requested comments in response to the following questions:

Reverse mortgages – Reverse mortgages, which have increased in popularity in recent years, allow borrowers to convert equity in their homes to a loan, which does not need to be prepaid until the borrower dies or sells the home. These types of loans are complicated and can have high up-front fees. Although Regulation Z requires special disclosures for reverse mortgages, there is still a concern that consumers do not understand these products.

For reverse mortgages loans, the Fed has requested comments in response to the following questions:

Topic 3 – Informed Consumer Choice in the Subprime Market

The growth in the subprime market in recent years has expanded access to credit by helping to increase homeownership and provide opportunities for consumers to use the equity in their homes. However, this growth has also raised policy concerns, such as whether these consumers are informed about mortgage products and options and whether they can effectively shop for the best rates and terms within the subprime market in order to find the best available mortgage that meets their needs.

There have also been concerns that pricing disparities may reflect illegal discrimination, rather than being based on costs or risk related factors. Recent loan price data released in 2005 for the first time under the Home Mortgage Disclosure Act show that African Americans and Hispanic borrowers have obtained higher priced loans more frequently than White or Asian borrowers. There is a debate as to whether or not this reflects legitimate credit distinctions among these groups, such as credit scores, incomes, or the value of the collateral.

The role of mortgage brokers has also raised concerns. Some believe that since brokers’ fees are based on the amount of the loans, broker may encourage consumers to obtain mortgage products that enable them to obtain larger loans without providing information about the risks of these products or information about other products that may better meet the consumer’s needs.

For this topic, the Fed has requested comments in response to the following questions:

Eric Richard • General Counsel • (202) 508-6742 •
Mary Mitchell Dunn • SVP & Deputy General Counsel • (202) 508-6736 •
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 •
Lilly Thomas • Assistant General Counsel • (202) 508-6733 •
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 •