WASHINGTON - The Federal Reserve Board proposed a rule Wednesday that could help the government identify predatory lenders.
In what agency officials described as potentially the most significant change of reporting requirements under the Home Mortgage Disclosure Act in more than 10 years, the plan would require lenders to include the annual percentage rates of all loans.
"This information would ease the identification of subprime loans, which have different characteristics, such as denial rates, from other home mortgage loans," the proposal said. "These data may also help supervisory agencies identify practices that potentially raise fair-lending concerns and warrant further investigation."
The proposal would also require lenders to report any loans that are subject to the Home Ownership and Equity Protection Act. Fed officials said the data would help identify subprime loans and could be used as a red flag to help locate potential predatory lenders.
"Right now we have no HMDA data on who is doing the high-cost lending in this area," said Glenn Canner, a senior adviser in the Fed's division of research and statistics. "With this report, examiners would be able to look at who is doing the high-cost lending and look carefully at those loans."
The 165-page plan is expected to be published shortly in the Federal Register, with comments due 60 days later.
Community activists welcomed the proposal but urged the Fed to do more to combat predatory lending.
"It will provide more information, but information is not the same as knowledge," said Robert Gnaizda, who is policy director and general counsel for the Greenlining Institute. Saying that the data would not shed much light on predatory lending practices, he predicted that the central bank would just end up requesting more extensive disclosures later.
"Since it is clear from the outset that what they are requesting is too modest to address the problem," he said, "they should go for it all."
John E. Taylor, president of the National Community Reinvestment Coalition, called the proposal "a step in the right direction - I hope simply a beginning step. The Fed is in a position to do a lot more than this."
To comply with the proposed changes, which would probably not take effect until 2002 at the earliest, Fed officials said banks would face "significant" one-time costs for changing software.
Steve Zeisel, senior counsel for the Consumer Bankers Association, said that the Fed appeared to be trying to walk a careful line between imposing additional regulatory burden on the industry and satisfying the demands of consumer groups for more extensive reporting. Nevertheless, he said, "there will be a lot of up-front costs and the continuing cost of trying to comply with this."
He said the requirement that banks disclose the annual percentage rate of home mortgage loans is likely to do more harm than good. "If the public is exposed to this information without context, it will be grist for a lot of controversy that is unnecessary and could be a problem for financial institutions," Mr. Zeisel said.
James D. McLaughlin, director of regulatory affairs at the American Bankers Association, said the proposal's biggest flaw is in not demanding data from nonbank lenders.
"If the goal is to identify subprime and predatory lending practices, then they need additional reporting from nonbank institutions," he said. "What this proposal does is allow nonbank lenders up to $50 million worth of mortgage loans before they have to report.
"That's way too high," Mr. McLaughlin said, particularly when a bank, based in a metropolitan statistical area and with as little as $30 million of assets, must report if it makes a single mortgage loan.
The proposal would also simplify the definition of refinancing and reportable home improvement loans, as well as requiring lenders to report requests for preapproval of mortgages and home equity lines of credit.
