Home equity lenders, recovering from last year's downturn, are in a new "fight for their lives," jousting with Freddie Mac and legislative initiatives, says Laura Borrelli, the spirited president of the industry's trade group.
The National Home Equity Mortgage Association kicks off its 25th annual conference this week, after months of turmoil in the market.
About 30 members have left the group because of a capital drought, many after filing for bankruptcy or closing shop. But the dropouts are being replaced by new companies, Ms. Borrelli says.
More than 800 executives have signed up for the conference, which will open Wednesday in Palm Springs, Calif., she said last week.
"The secondary market is improving," Ms. Borrelli said, and new highly capitalized players are joining the industry. "Spreads are back up, and everyone is learning to work on slimmer margins."
Now, however, Freddie Mac's involvement in the subprime market is threatening the margins, she said, and could squeeze out players that concentrate on more creditworthy but less-than-prime customers.
The government sponsored enterprise began originating some subprime loans through its automated underwriting software, and securitizes the loans.
Ms. Borrelli said that the agency's involvement could create two secondary markets for the loans, which could eventually drive up costs for consumers with the worst credit history.
Ms. Borrelli said an implicit government guarantee gives Freddie an unfair advantage. "It certainly isn't a level playing field," she said. "Their cost of funds is much lower, and they don't pay taxes."
A spokesman for Freddie Mac said its activities bring liquidity to the market. He added that every time Congress has looked into complaints of a pricing advantage, it has concluded that the benefits flow to consumers.
Legislative plans are also troubling home equity lenders.
Last year the group joined the Mortgage Reform Working Group, a consortion of consumer groups, lenders and regulators working to clarify lending legislation.
Ms. Borrelli said her industry "quickly became the whipping boy." Other members of the groupzeroed in on cases of fraud in the home equity industry, she said.
"We truly believe these offenses are minuscule," Ms. Borrelli said. "We can't run an industry the size of ours by preying on minorities and the elderly."
Some of the proposed legislative changes-including requiring consumers to pay closing costs up front rather than rolling them into the loan, and putting low caps on rates-could destroy the industry, she said.
Home equity lenders are also scrambling to upgrade technology, Ms. Borrelli said, as borrowers show more interest in originating loans through the Internet.
Though the industry faces several challenges, Ms. Borrelli said she is confident of its survival. "Unlike other times when we've had problems, home equity loans have become a mainstay consumer product."