WASHINGTON - The Office of Thrift Supervision's effort to curb predatory lending has thrift executives worried that legitimate subprime lending could be stigmatized.

"While we feel a strong need to curb abusive lending practices … we nevertheless are concerned that a broad brush approach can have an inappropriate impact on nonpredatory lenders," David S. Madsen, group senior vice president of $41.5 million-asset World Savings Bank of Oakland, Calif., said in a letter to the agency.

The agency is considering ways to close a federal loophole that allows state-regulated nonbank mortgage lenders to avoid tough state subprime lending laws.

In April the OTS issued an advance notice of proposed rulemaking that could lead to reform of the Alternative Mortgage Transaction Parity Act, which was passed in 1982 to stimulate lending through variable-rate mortgages and other alternative financing.

The parity act lets state-regulated finance companies choose to comply with state or federal lending regulations. In states with strong laws against predatory lending, some lenders are opting for the more lenient federal rules.

Mr. Madsen urged the agency "to consider the impact of any modification to its regulations on nonpredatory insured depository lenders offering legitimate products."

Though no specific proposal is on the table, the OTS said it could amend regulations under the parity law, increase enforcement of current rules, or recommend abolishing the act to let state laws prevail.

"We need to find the best way to get at the part of the predatory lending problem that we have some ability to deal with on a regulatory basis, while making sure we do not stop innovation," OTS director Ellen Seidman said Tuesday in an interview.

Charles R. Lee, vice president of $5.6 billion-asset MidFirst Bank of Oklahoma City, told the OTS that better implementation of the current regulations would be the best route.

"MidFirst believes that adequate enforcement provisions already exist to prevent predatory lending and is concerned about the increased regulatory burden" new rules could impose, Mr. Lee wrote.

The OTS is also looking at potentially predatory tactics associated with subprime loans, such as financing fees, prepayment penalties, and high loan-to-value ratios. But industry representatives said the controversial terms actually help less-qualified borrowers obtain mortgage loans.

"These regulations have established highly effective alternative mortgage lending standards that have lowered the cost of credit to consumers across the nation," wrote Karen Severn Jackson, vice president and associate counsel of ABN Amro Mortgage Group, the operating subsidiary of $19 billion-asset Standard Federal Bank of Troy, Mich.

Community activists urged the OTS to go further. The Coalition for Responsible Lending, in North Carolina, said the agency should ask Congress to abolish the parity law and to revise federal rules in the interim to prohibit prepayment penalties and late fees.

"Not only is the Parity Act no longer necessary to ensure the adequate supply of mortgage credit to American homebuyers, but it is now harmful to state efforts to restrict deceptive terms, such as balloon payments on high-cost loans," wrote Martin Eakes, a spokesman for the group.

Neil Milner, president of the Conference of State Bank Supervisors, said in a letter that state regulations can be more effective and that the OTS should "develop an approach that complements rather than conflicts with state-based initiatives."

The agency is reviewing 65 comment letters, and has not determined when it will decide what regulatory actions or legislative recommendations to make, Ms. Seidman said.

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