Dec. 12, 2001

Contact: David Swanson 202-547-2500, Chris Saffert 202-390-5019

ACORN Welcomes Federal Reserve Action on Predatory Lending - But More Must be Done to Protect Homeowners and Neighborhoods

ACORN National President Maude Hurd welcomed the Federal Reserve's approval today of updated regulations on the federal Home Ownership Equity Protection Act (HOEPA), which will help address the growing problem of predatory lending. But she noted that the regulations fall well short of a comprehensive response to the abuses and urged the Fed to finalize its proposed rule on the Home Mortgage Disclosure Act (HMDA), which would show for the first time where and to whom high-cost home loans are being made.

"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," said Hurd. "It's highly appropriate that single premium credit insurance policies will be treated as fees, since that is how they function in the market, and lowering the annual percentage rate (APR) threshold will be helpful. However, the Fed could have taken much stronger steps against loan flipping and other deceptive lending practices."

For the Fed, the spotlight now shifts to its HMDA rule - also offered last December - in which it proposed that lenders disclose the distribution of APRs on their home loans. Currently, mortgage lenders are required to report where they're accepting or rejecting loan applicants by census tract and the applicant's race, income, and gender, but nothing about the quality of the loans they're making. "Low-income and minority communities suffer from a shortage of good loans while we're drowning in an over-abundance of predatory loans," said Ms. Hurd. "It's long past time for the Fed to make this data publicly available so we can see what's really going on in the subprime market."

Ms. Hurd concluded, "No action the Fed could have taken today would eliminate the need for Congress to amend HOEPA along the lines of what has been proposed by Senate Banking Committee Chair Paul Sarbanes and Rep. John LaFalce, Ranking Democrat on the House Financial Services Committee. Until Congress acts on those measures, cities and states will continue to pass their own measures to protect their residents from abusive home loans."

Background:

In 1994, the Home Ownership Equity Protection Act (HOEPA) was signed into law, providing a very limited set of protections on a small class of home loans with the highest fees and rates. Prior to today's action by the Fed, those protections applied to home loans that exceeded either a 'points and fees' threshold of 8% of the loan amount or an annual percentage rate (APR) threshold of the Treasury bond rate plus 10%. The legislation granted the Federal Reserve significant authority to count additional items toward the calculation of 'points and fees', to adjust the APR threshold, and to crack down on loan flipping and other deceptive lending practices. Despite the significant damage inflicted by predatory loans since 1994, today's action marks the Board's first use of this authority, which can be found at 15 USC 1602(aa) and 15 USC 1639(l)(2).

The Federal Reserve's proposed rule on HOEPA from last December is available at

http://www.federalreserve.gov/boarddocs/press/boardacts/2000/20001219/attachment.pdf.

On March 9, ACORN National President Maude Hurd sent comments on the Fed's proposal to Chairman Greenspan and the Board of Governors. These comments are available at Comments Submitted to the Federal Reserve.

ACORN, the Association of Community Organizations for Reform Now, is the nation's largest community organization of low- and moderate-income families, with over 100,000 member families organized into 500 neighborhood chapters in 40 cities across the country. Since 1970 ACORN has taken action and won victories on issues of concern to our members. Our priorities include: better housing for first time homebuyers and tenants, living wages for low-wage workers, more investment in our communities from banks and governments, and better public schools. We achieve these goals by building community organizations that have the power to win changes -- through direct action, negotiation, legislation, and voter participation. ACORN's website is at http://www.acorn.org/.