HOEPA was enacted in 1994 in response to Congressional concerns over “reverse redlining.” [PDF] According to the Senate Banking Committee report accompanying the legislation, “reverse redlining” is the practice of targeting residents of specific disadvantaged communities for credit on unfair terms, and in particular by second mortgage lenders, home improvement contractors, and finance companies. These lenders were felt to “peddle high-rate, high-fee home equity loans to cash-poor homeowners.” … [1] American Bar Association analysis, vintage August 2007
I’m working through the Q&A session of AEI’s October 11, 2007 Subprime II seminar, and around 1:34:00 on the tape there’s a fascinating exchange between panelist Tom Zimmerman of UBS and Ann Sorensen(sp?), who seems to be an analyst for Christian Brothers Investment Services.
Tom takes pains to point out to Ann that the Federal Reserve Board has full authority to stop predatory lending practices under the above-mentioned 15 year old legislation. And furthermore, Chris Dodd had told Ben Bernanke in April of 2007 to bloody well get on with it.[2]
Oh well, now that the Fed Chairman is getting another term, perhaps he’ll have a chance to find HOEPA and other useful things that may have been lost in the shuffle.
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[1]: "HOME OWNERSHIP EQUITY PROTECTION ACT OF 1994" (PDF – review), by Raymond Natter, ABANet, August 2007.
[2]: "Chairman Dodd, Banking Committee Democrats Urge Bernanke to Follow Law…", Chris Dodd Senate homepage, April 23, 2007.
Democrats on the Senate Committee on Banking, Housing and Urban Affairs joined Chairman Chris Dodd (D-CT) today in sending a letter [link to letter follows in the release] urging Federal Reserve Board Chairman Ben Bernanke to exercise its obligations under the Home Ownership and Equity Protection Act (HOEPA) of 1994 to issue regulations that address predatory lending practices in the subprime mortgage market. …
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John-
As is so often the case in the financial industry, the problem is a matter of enforcement, not of regulation. Sadly, passing a bill is a lot simpler than making sure than making sure what ought to happen, happens.
yup… a bill is about as useful as some of those silly laws we have around the country. you know…the ones like “you can’t walk backwards while chewing gum to church on sunday.” sure, they exist. but is anyone really gonna arrest we for walking backwards to church while chewing gum on sunday? the bill is also very similar to the SEC and FASB in the accounting world. if they had wanted to, some of the largest financial scandals in history could’ve been prevented (madoff ponzi scheme, enron, mci/worldcom, etc). the rules were all in place…the problem is that nobody enforced them?
The threat is stronger than the execution.–Aaron Nimzovich
While the banking/securities laws were enacted to shield the poor against the alleged rapacity of evil, parasitic capitalists, in reality, they are primarily window dressing.
This activity is merely standard populist boilerplate–a Kabuki theater meant to persuade voters of the generosity, clemency and basic decency of their elected officials.
If all the laws directed against capital and its uses were ever enforced, the economy would quickly grind to a halt.