Download Locations:
Summary:
The subprime mortgage market began to flourish in the 1990s. As subprime mortgage lending increased, predatory lending did as well. Congress responded to this influx of predatory lending practices by passing the Home Ownership and Equity Protection Act (HOEPA, P.L. 103-325), which proscribes some common abusive tactics. Drawing the line between valid subprime lending and predatory lending has proven to be a difficult task. Some have argued that while HOEPA has helped curb some predatory lending practices, it does not go far enough. Others believe that HOEPA has gone too far, arguing that it has reduced competition and dried up credit to risky borrowers, as some lenders as a matter of policy stopped extending HOEPAcovered loans. At least 30 states and the District of Columbia have enacted a wide array of legislation seeking to improve upon HOEPA. Some are only minimally different from HOEPA, while others are far more comprehensive. The differences among them reflect the difficulty in striking the appropriate balance between discouraging predatory terms and conditions without also unreasonably restricting lending to borrowers with less-than-perfect credit. Even with their differences, federal and state predatory lending statutes tend to confront a combination of 11 basic issues: (1) covered loans; (2) asset-based lending; (3) prepayment penalties; (4) balloon payments; (5) negative amortization; (6) loan flipping; (7) credit counseling; (8) mandatory arbitration clauses; (9) loan packing; (10) no call acceleration provisions; and (11) financing of points and fees. This report provides an overview of these 11 common aspects of predatory lending legislation, starting with a general description of the practice followed by how each is addressed in HOEPA and its regulatory counterpart, Subpart E of Regulation Z (Reg Z).
