PROPOSED AMENDMENTS TO REGULATION Z REGARDING HOEPA.

The Federal Reserve Board on December 13, 2000, proposed amending the provisions of the Board's Regulation Z (Truth in Lending) that implement the Home Ownership and Equity Protection Act (HOEPA) of 1994.

The Board seeks public comment on the proposed rule, which will be published in the Federal Register.

The amendments would broaden the scope of loans subject to HOEPA's protections by adjusting the price triggers that determine coverage under the act. The rate-based trigger would be lowered by 2 percentage points, and the fee-based trigger would be revised to include optional insurance premiums and similar credit protection products paid at closing.

Certain acts and practices in connection with home-secured loans would be prohibited, including a rule to restrict creditors from engaging in repeated refinancings of their own HOEPA loans over a short time period when the transactions are not in the borrower's interest. HOEPA's prohibition against extending credit without regard to a consumer's repayment ability would be strengthened by requiring creditors generally to document and verify income for HOEPA-covered loans. HOEPA disclosures would include the total amount of money borrowed.

HOEPA was enacted in response to anecdotal evidence of predatory lending practices in the home equity lending market. HOEPA imposes additional disclosure requirements by creditors at least three business days before the loan is closed. It also imposes substantive limitations, such as restrictions on short-term balloon notes, on certain home equity loans with rates and fees above a certain percentage or amount.

The term "predatory lending" encompasses a variety of practices. Often homeowners in certain communities--particularly, the elderly and minorities--are targeted with offers of high-cost, home-secured credit. The loans carry high up-front fees and may be based on the homeowners' equity in their homes, not their ability to make the scheduled payments. When homeowners have problems repaying the debt, they are often encouraged to refinance the loan. Frequently this leads to another high-fee loan that provides little or no economic benefit to the borrower.

HOEPA authorizes the Board to expand HOEPA's coverage and prohibit certain acts and practices in connection with mortgage lending generally. The Board held hearings this summer in Charlotte, Boston, Chicago, and San Francisco on possible ways to curb predatory lending using its regulatory authority.