Copyright 2001 Globe Newspaper Company  
The Boston Globe
December 22, 2001, Saturday ,THIRD EDITION
SECTION: REAL ESTATE; Pg. E1

LENGTH: 772 words

HEADLINE: ON SPEC;
NEW RULES DESIGNED TO CURB LENDING ABUSES

BYLINE: Compiled by Thomas Grillo.

BODY:
The Federal Reserve Board has approved regulations designed to curb so-called predatory lending. The amendments to Regulation Z, better known as Truth in Lending, broaden the scope of loans subject to the Home Ownership and Equity Protection Act of 1994 by adjusting the price triggers that determine coverage under the act.

The rate-based trigger has been lowered from 10 percentage points to 8 percentage points above US Treasury securities. Certain practices in connection with home loans have also been prohibited, including a restriction on creditors engaging in "flipping," or repeated refinancings over a short period of time.

   The new regulations also require creditors to verify income and strengthen the prohibition on extending credit without regard to a consumer's ability to pay. Disclosures consumers must be given include the total amount of money borrowed and whether that amount includes the cost of optional credit insurance or similar products.

Housing advocates say homeowners in certain low-income and minority communities are often targeted with offers of high-cost, home-secured credit. The loans carry high upfront fees and may be based on the homeowners' equity in their homes, not their ability to make the scheduled payments. When homeowners have problems repaying the debt, they are often encouraged to refinance the loan, sometimes leading to another high-fee loan that provides little benefit to the borrower.

The Mortgage Bankers Association said it supports the Fed's efforts to ensure that unscrupulous lenders do not gouge consumers. But it's concerned that expanding the reach of the law could limit the credit that's available to consumers.

The subprime lending market is defined as higher risk because it is comprised of borrowers with poor credit histories, spotty employment, and high debt. If lenders can't mitigate the risks with higher points and fees, the association says, its members won't make such loans.

But the Association of Community Organizations for Reform Now, a national grassroots housing advocacy group, said more must be done to protect homeowners.

Maude Hurd, ACORN's president, said the regulations fall short.

"I'm glad to see the Federal Reserve finally starting to live up to some of its responsibilities to help protect consumers from predatory lending abuses," Hurd said. "But the Fed could have taken much stronger steps against loan-flipping and other deceptive lending practices." BILL WOULD PROHIBIT BANK BROKERAGES

In a move that takes direct aim at an anticipated decision by the Federal Reserve Board to allow banks to sell real estate, a coalition of Republican and Democratic congressmen has introduced legislation to prohibit banks from entering the real estate brokerage or property management businesses.

Banks are seeking permission to sell and manage real estate under a proposed rule before the Fed and the Treasury Department. A decision is expected early next year.

But the National Association of Realtors has lobbied against that, saying such a move will lead to higher costs to consumers, large-scale consolidation in the real estate industry, and potential conflicts of interest, should banks be able to steer home buyers to their own insurance and loan products.

"Banks that broker real estate and also sell mortgages cannot avoid a conflict of interest," said the group's president, Martin Edwards Jr.

"They will steer consumers toward their proprietary products and services. When they say one-stop shopping, they really mean one-bank shopping. If you buy their home, you'll have to buy their loan, whether it's the right product for you or not."

Local real estate brokerages will find themselves at a competitive disadvantage, Edwards said. He added that federally chartered banks enjoy access to capital at lower rates than any other business. Their goal is to control the real estate transaction so that they can cross-sell their own loans and financial products, and to discount brokerage fees so they can drive out competitors, he said.

But Daniel Forte, president of the Massachusetts Banking Association, said the legislation is an effort to pressure the Fed.

"The realtors are trying to roll back the federal law that gave regulators the authority to make these decisions about financially related products," he said.

"This is a protectionist measure. Real estate brokers have been in the mortgage lending business since the 1980s. Why shouldn't community banks be allowed to get into the real estate brokerage business?"

Please e-mail material to be considered for this column to tgrillo@hotmail.com.

LOAD-DATE: December 24, 2001