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<p>Sometimes the best settlements are those that neither side likes, the idea being that the best resolution involves substantial compromises from both sides. The same can be said for the current debate surrounding predatory lending and the recent rules that the Federal Reserve Board (Fed) has issued addressing the problem. These rules amend the requirements under the Home Ownership and Equity Protection Act (HOEPA), which was enacted in 1994 to protect borrowers from predatory lending. HOEPA imposes limitations and additional disclosure requirements for home-equity loans with high rates and fees. (Home purchase loans are excluded.) The new rules have changed the HOEPA requirements to cover more loans. Here are some of the significant changes: A loan was covered under HOEPA if the annual percentage rate exceeded comparable Treasury securities by more than 10 percentage points. The new rule will lower this threshold to eight percentage points for first-lien mortgages. HOEPA also covers loans if points and fees exceed eight percent of the loan amount or $480. Points and fees will now include amounts paid at closing for optional credit life, accident, health, or loss-of-income insurance, and other similar products, such as debt cancellation coverage. Lenders will now be prohibited from refinancing a loan within the first 12 months, unless it is in the borrower’s best interest. The current prohibition against making HOEPA loans without considering the ability to repay is changed to presume that lenders are engaging in such practices if they fail to verify repayment ability. The rule clarifies that revised disclosures are required when borrowers accept and finance credit and other optional products if this changes the monthly payment. The rule clarifies that the additional disclosures required under HOEPA will include voluntary items if the borrower previously agreed to them. From the beginning, these rules have been attacked by all sides. Consumer advocates say the Fed’s rules don’t go far enough. They would prefer to see outright bans on practices associated with predatory lending, instead of increased disclosure requirements. On the other hand, many lenders claim the extra requirements will drive them away from this market, reducing the availability of legitimate subprime loans. In their view, these rules will hurt the very borrowers who have been helped by the increased access to the subprime market in recent years. CUNA supported these rules but encouraged additional measures to eradicate predatory lending. This should come as no surprise. Credit unions have and will continue to play a pivotal role in this debate over predatory lending. From the beginning, credit unions were formed to provide basic financial services at a reasonable cost as an alternative to lenders who try to take advantage of those who are vulnerable to predatory practices. In recent years, CUNA and credit unions have made great efforts to help our members in this area. Last year, CUNA’s Governmental Affairs Committee approved voluntary mortgage lending standards and ethical guidelines, designed to help credit unions distinguish themselves from predatory lenders by setting an example for the entire financial institutions industry. These guidelines are available on the CUNA website – www.cuna.org. Of course, there is nothing new here. These model standards and guidelines merely outline the responsible efforts credit unions are already taking around the country to combat predatory lending. What is new is that credit unions now have the opportunity to adopt these guidelines and to tell others that they will continue to emphasize member education, meet members’ borrowing needs, condemn abusive practices, and support efforts to prohibit predatory lending. The new HOEPA rules include many of these concepts. And make no mistake about it. It looks like more may be coming from Congress and the regulators, although not all of it may be positive for credit unions. Unfortunately, it looks like the Fed may issue another rule next year that is intended to address predatory lending but will impose substantial new burdens on credit unions. The rule will amend Regulation C, the Home Mortgage Disclosure Act (HMDA), to require lenders to report requests for loan preapprovals, home-equity lines of credit, the annual percentage rate of the loan, whether the loan is subject to HOEPA, and whether the loan or application involves a manufactured loan. Unless changed significantly from its proposed form, this rule will require credit unions that meet HMDA thresholds to make expensive changes to data collection systems and provide additional staff retraining. CUNA emphasized in our comment letter to the Fed that credit unions are not the source of the predatory lending problem and should, therefore, not be covered by these burdensome changes. CUNA will continue to fight these onerous new requirements. Although the September 11 terrorist attacks have pushed many issues off the Congressional radar screen, predatory lending is not one of them. Look for more hearings and possible action next year, such as measures to include even more loans under HOEPA and the possible prohibition of certain practices often associated with predatory lending.</p>

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