WASHINGTON Industry representatives slammed a Federal Reserve Board proposal that would expand reporting requirements under the Home Mortgage Disclosure Act, arguing that the plan is useless, costly, and counterproductive.
In comment letters to the central bank, bankers contended that the current data collected under the disclosure act provides enough information, and that the cost and burden of compliance with the proposal could push lenders out of the subprime market and deny consumers access to credit.
The expenses entailed with these changes will increase the cost of credit, disadvantaging the marginal loan applicants who are already the most vulnerable to predatory lending, wrote Thomas J. Sheehan, president of the Independent Community Bankers of America. Instead of protecting them, the potential result of the changes is to enhance the environment for predatory lenders.
The Fed proposal would require banks and thrifts to report the annual percentage rates on all mortgage loans, as well as whether a loan is subject to the Home Ownership and Equity Protection Act, and any pre-approvals granted by the institution. The November proposal was designed to gather information to help regulators identify predatory lenders. The comment period closed Friday.
Community activists and senior Clinton administration officials sent letters supporting the proposal, and urging the Fed to go further in collecting more data.
Former Treasury Secretary Lawrence H. Summers, in a letter dated the day before the Bush administration took office, supported the proposal but recommended that the Fed require additional disclosures, including points and fees for all mortgage loans and the reasons why a loan application was denied. We strongly support the Boards rulemaking proposal because it would clarify regulatory definitions, improve the reporting process and provide additional, useful information about U.S. home mortgage markets including the subprime market, wrote Mr. Summers.
Bill Lann Lee, assistant attorney general in the civil rights division of the Justice Department, made similar recommendations and wrote that the additional data will further assist lenders in effectively monitoring lending activities and facilitate the Department of Justice and the financial regulatory agencies fair lending enforcement.
But bankers contended that the added data was overly broad and could be easily misinterpreted. Critics said the disclosure of an APR alone would exclude the variety of factors that go into determining the rate, including differing loan product choices, geographic and market variances, and risk factors.
The APR has limited value because it is a blunt instrument, wrote Leland Chan, general counsel of the California Bankers Association. It does not further describe the motives of a borrower in choosing a mix of points, payment terms, and the myriad of other loan features a borrower fashions to suit his or her purpose. The effect of these factors makes aggregate analysis a precarious undertaking. Any disparity in aggregate APR data will be given heightened scrutiny that will lead inexorably to conclusions about perceived creditor bias.
Critics also said that the added disclosure of protection act loans could also be misconstrued.
The general confusion that surrounds subprime lending and predatory lending makes this particular data request ripe for misinterpretation and inaccurate extrapolation, wrote Charlotte M. Bahin, director of regulatory affairs for Americas Community Bankers. Community bankers, who do not engage in predatory lending may well consider taking additional measures to avoid any possibility of having to report such loans. This could, in turn, have the unintended effect of reducing credit availability as lenders seek to steer clear of any loans to borrowers with less than perfect credit profiles.
The Fed released a separate, but related proposal in December that would lower the triggers for protection act loans. Comments on that plan are due Friday. A third related proposal, pending for years, would broaden the mortgage disclosure acts reach by letting lenders collect race and gender data on all loans.
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