WASHINGTON (12/14/07)-–Nineteen members of the House Financial Services Committee urged the Federal Reserve Board Thursday to include strong consumer protections in its soon-to-be-released Home Ownership and Equity Protection Act (HOEPA) rules. Federal Reserve Board Governor Randall Kroszner announced during a hearing last week that the Fed would issue proposed HOEPA regulations before the end of this month. He was testifying before the Financial Services Committee during that panel’s look at “accelerating loan modifications, improving foreclosure prevention and enhancing enforcement.” The lawmakers’ letter, addressed to Fed Chairman Benjamin Bernanke, noted the committee’s work on mortgage issues during the past year. During that process, the letter said, the members have identified a number of lending products and practices they believe the Fed should address, such as new rules to:
* Prohibit prepayment penalties for subprime loans and require that any remaining prepayment penalties be limited in size and duration and expire at least three months before an interest rate reset; * Require realistic underwriting of the borrower’s ability to pay a mortgage, not just for the initial “teaser period” but for the entire term of the loan. Prudent underwriting should require a verification of income or assets necessary to repay the loan including the likely taxes, insurance and fees: * Eliminate “perverse incentives” to steer consumers into more expensive loans by, for example, prohibiting originator compensation that varies according to the terms of the mortgage, and promulgating rules that eliminate abusive and discriminatory lending practices; and * Improve disclosures so that consumers can fully understand the material terms of their loans and better compare costs and terms among different loans and loan originators.
The letter was signed by the following Democrats: Reps. Barney Frank (Mass.), Brad Miller (N.C.), Paul E. Kanjorski (Pa.), Maxine Waters (Ca.), Carolyn B. Maloney (N.Y.), Luis V. Gutierrez (Il.), Melvin L. Watt (N.C.) Michael E. Capuano (Mass.), Wm. Lacy Clay (Mo.), Carolyn McCarthy (N.Y.), Joe Baca (Ca.), Al Green (Tex.), Emanuel Cleaver (Mo.), Gwen Moore (Wi.), Albio Sires (N.J.), Paul Hodes (N.Y.), Keith Ellison (Mn.), Ed Perlmutter (Co.), and Christopher S. Murphy (Conn.).