CUNA Regulatory Comment Call

June 8, 2007

Home Equity Lending Hearing

Executive Summary

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-1288. You may also contact us at 800-356-9655, ext. 6032, if you would like more information about the hearing 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 $547 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 2006, which focused on the impact of HOEPA and state and local laws on subprime lending, as well as issues in connection with nontraditional loans.


Topic 1 – Prepayment Penalties

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

Topic 2 – Escrow for Taxes and Insurance on Subprime Loans

Loans to prime borrowers typically include an escrow account for taxes and insurance, while subprime borrowers typically do not have these accounts. This has led to concerns that these borrowers are unaware and do not budget for these expenses.

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

Topic 3 – “Stated Income” or “Low Doc” Loans

In some cases, a lender will make a mortgage loan without documenting or verifying the borrower’s income. Concerns have been raised regarding the truthfulness of this information and that borrowers are unknowingly charged higher rates for these types of loans Concerns have also been raised about the use of these “stated income” loans with other “risk-layering features,” such as second-lien loans for all or part of the consumer’s downpayment.

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

Topic 4 – Unaffordable Loans

The National Credit Union Administration and the other financial institution regulators recently issued guidance on nontraditional loans. This guidance provides that lenders should evaluate the borrower’s ability to repay based on the fully indexed rate, assuming an amortizing payment schedule, and on the ability to repay any increase in the loan balance that may result from negative amortization. The issue has arisen as to whether this should apply to all loans, not just nontraditional loans, and whether a loan is affordable if payments exceed 50% of income.

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

For all four of these topics, the Fed is also requesting comments on the following:

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 •