Circular
Predatory Practices in Home - Equity Lending
July 17, 2000
Circular No. 11260

To All Depository Institutions and Others Concerned in the Second Federal Reserve District:

The following is from a statement by the Board of Governors of the Federal Reserve System:

The Federal Reserve Board has invited consumers, consumer advocacy organizations, lenders and other interested parties to participate in three public hearings on predatory practices in the home-equity lending market.

Invited speakers will participate in panel discussions focused on ways the Board might use its rule-writing authority to curb predatory practices in home-equity lending while preserving access to credit for borrowers with less-than-perfect credit ratings. Time will be reserved after the panel discussions for brief statements from other interested parties.

The hearings are being conducted under the authority of the Home Ownership and Equity Protection Act of 1994 (HOEPA), which imposes disclosure requirements and other limits on certain high-cost, home-secured loans. HOEPA was enacted in response to reports of abusive lending practices by unscrupulous lenders making unaffordable home-secured loans to "house-rich but cash-poor borrowers." These cases frequently involved elderly and sometimes unsophisticated homeowners who were targeted for loans with high rates and fees and repayment terms that were difficult or impossible to meet. Often the transactions involved fraud or unlawful misrepresentations by lenders or brokers.

Since HOEPA's enactment, the volume of home-equity lending has grown significantly, and this growth has been accompanied by an increase in subprime lending -- lending to borrowers having less-than-perfect credit histories and to other consumers who do not meet the underwriting standards of prime lenders. Because consumers who obtain subprime mortgage loans may have fewer credit options than other borrowers, they may be more vulnerable to unscrupulous lenders or brokers. Accordingly, while certainly not all subprime loans are predatory, the increase in the number of subprime loans has raised concerns about the potential for a corresponding increase in the number of predatory loans.

The hearings will seek public views about home-equity lending in general, but will focus specifically on ways the Board might use its authority. HOEPA authorizes the Board to adjust the high-cost triggers that could affect the scope of the act's coverage and it directs the Board to prohibit certain mortgage lending acts and practices if the Board makes the findings required by the statute.

The first hearing is scheduled on Thursday July 27, 2000, at the Charlotte Branch of the Federal Reserve Bank of Richmond, 530 East Trade Street, Charlotte, NC. The second is scheduled on Friday August 4, 2000, at the Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston, MA. A third hearing will be held on Thursday September 7, 2000, at the Federal Reserve Bank of San Francisco, 101 Market Street, San Francisco, CA.

All hearings are scheduled from 9 a.m. to 4:30 p.m., and will begin with panel discussions by invited speakers. Other interested parties may deliver oral statements of five minutes or less at a two-hour "open-mike" period starting at about 2:30 p.m. Written statements of any length may be submitted for the record. Anyone interested in presenting an oral statement is asked to call the Board in advance of the hearing at (202) 452-3667.

The Board's official notice (pdf - 135kb), as published in the Federal Register of July 12, is available. Written comments should be submitted to Jennifer J. Johnson at the Board, as specified in the notice, by September 1, 2000.