MBA Issues Comments on Proposed HOEPA Rule

The Mortgage Bankers Association today filed comments with the Federal Reserve in response to the Board's proposed rule to amend Regulation Z under the Truth in Lending Act (TILA) and the Home Ownership and Equity Protection Act (HOEPA). In its comments, MBA commended the Board for its thoughtfulness and offered recommendations on how the proposed rule can be improved to better protect consumers without causing decreased credit availability and increased consumer costs.

'We commend the Board for developing a comprehensive set of rules to address abuses in the mortgage market,' said Kieran P. Quinn, CMB, Chairman of MBA. 'We support many of the provisions in the proposed rule, but we do have concerns about the increased regulatory burden, liability and reputational risks that lenders might face. If the rules are not revised, many borrowers will pay more for their mortgage and fewer loans will be made to those borrowers most in need of credit.'

MBA's greatest concern is that the Board's definition of subprime loans is overly broad and could capture too many prime loans, subjecting those products to overregulation and higher costs for borrowers. In addition, MBA is troubled by the extraordinary new legal risk created by the Board's decision to propose the rule under its unfair or deceptive practices authority. These provisions include penalties that are disproportionate to the potential violations.

MBA's letter contains recommended changes to improve the rule, including:

· Strengthening safe harbors in consideration of ability to repay. The current rebuttable presumption is insufficient to protect lenders from unreasonable litigation risk.

· Coordinating with HUD on disclosure of broker's compensation. The Board's current approach is incompatible with HUD's proposed new RESPA rule.

· Assuring a reasonable implementation period. The proposed changes require major operational, staffing and training challenges for lenders.

'The proposed rule shows an appreciation of the fact that ill-conceived restrictions can stifle innovation in the mortgage market and can limit the availability of credit for all consumers,' said Quinn. 'We hope that the Board will move quickly to finalize these rules after addressing the concerns that we have raised on our members' behalf.'

A complete copy of MBA's comments can be found at www.mortgagebankers.org.