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Federal Reserve Bank of Dallas
2200 N. PEARL ST.
DALLAS, TX 75201-2272

May 5, 2006
Notice 06-24

TO: The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District
SUBJECT
Board of Governors to Hold Four Public Hearings
on the Home Equity Lending Market
DETAILS
Section 158 of the Home Ownership and Equity Protection Act of 1994 (HOEPA) directs the
Board to hold public hearings periodically on the home equity lending market and the adequacy of
existing regulatory and legislative provisions (including HOEPA) in protecting the interests of
consumers. Consequently, the Board of Governors will hold hearings on the home equity lending
market and invites the public to attend and to comment on the issues that will be the focus of the
hearings. Additional information about the hearings will be posted to the Board’s web site at
www.federalreserve.gov.
The dates and locations of the hearings are as follows:
1).

June 7, 2006, 8:30 a.m. to 4:00 p.m.– The Federal Reserve Bank of Chicago, 230 South
LaSalle Street, Chicago, IL 60604

2).

June 9, 2006, 8:30 a.m. to 4:00 p.m. – The Federal Reserve Bank of Philadelphia, 10
Independence Mall, Philadelphia, PA 19106

3).

June 16, 2006, 8:30 a.m. to 4:00 p.m. – The Federal Reserve Bank of San Francisco,
101 Market Street, San Francisco, CA 94105

4).

July 11, 2006, 8:30 a.m. to 4:00 p.m. – The Federal Reserve Bank of Atlanta, 1000
Peachtree Street, NE, Atlanta, GA 30309

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012;
Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

-2The Board must receive comments from persons unable to attend the hearings or others
wishing to submit written views on the issue raised in this notice by August 15, 2006. Please address
comments to Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th
Street and Constitution Avenue, N.W., Washington, DC 20551. Also, you may mail comments
electronically to regs.comments@federalreserve.gov. All comments should refer to Docket No.
OP-1253.
The public can also view and submit comments on proposals by the Board and other federal
agencies from the www.regulations.gov web site.
ATTACHMENT
A copy of the Board’s notice as it appears on pages 26513–16, Vol. 71, No. 87 of the Federal
Register dated May 5, 2006, is attached.
MORE INFORMATION
For more information, please contact Diane van Gelder, Banking Supervision Department,
(214) 922-6282. Previous Federal Reserve Bank notices are available on our web site at
www.dallasfed.org/banking/notices/index.html or by contacting the Public Affairs Department at
(214) 922-5254.

Federal Register / Vol. 71, No. 87 / Friday, May 5, 2006 / Notices

FEDERAL RESERVE SYSTEM
[Docket No. OP–1253]

Home Equity Lending Market; Notice of
Public Hearings
Board of Governors of the
Federal Reserve System.
ACTION: Public hearings; request for
comment.

cchase on PROD1PC60 with NOTICES

AGENCY:

SUMMARY: Section 158 of the Home
Ownership and Equity Protection Act of
1994 (HOEPA) 1 directs the Board to
hold public hearings periodically on the
home equity lending market and the
adequacy of existing regulatory and
legislative provisions (including
HOEPA) in protecting the interests of
consumers. Consequently, the Board
will hold hearings on the home equity
lending market and invites the public to
attend and to comment on the issues
that will be the focus of the hearings.
Additional information about the
hearings will be posted to the Board’s
Web site at http://
www.federalreserve.gov.
DATES: The dates of the hearings are:
1. June 7, 2006, 8:30 a.m. to 4 p.m.,
Chicago, IL.
2. June 9, 2006, 8:30 a.m. to 4 p.m.,
Philadelphia, PA.
3. June 16, 2006, 8:30 a.m. to 4 p.m.,
San Francisco, CA.
4. July 11, 2006, 8:30 a.m. to 4 p.m.,
Atlanta, GA.
Comments. Comments from persons
unable to attend the hearings or
otherwise wishing to submit written
views on the issues raised in this notice
must be received by August 15, 2006.
ADDRESSES: The locations of the
hearings are:
1. Chicago—The Federal Reserve
Bank of Chicago, 230 South LaSalle
Street, Chicago, IL 60604.

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26513

2. Philadelphia—The Federal Reserve
Bank of Philadelphia, 10 Independence
Mall, Philadelphia, PA 19106.
3. San Francisco—The Federal
Reserve Bank of San Francisco, 101
Market Street, San Francisco, CA 94105.
4. Atlanta—The Federal Reserve Bank
of Atlanta, 1000 Peachtree Street, NE.,
Atlanta, GA 30309.
You may submit comments, identified
by Docket No. OP–1253, by any of the
following methods:
• Agency Web site: http://
www.federalreserve.gov. Follow the
instructions for submitting comments at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• E-mail:
regs.comments@federalreserve.gov.
Include the docket number in the
subject line of the message.
• Fax: (202) 452–3819 or (202) 452–
3102.
• Mail: Address to Jennifer J. Johnson,
Secretary, Board of Governors of the
Federal Reserve System, 20th Street and
Constitution Avenue, NW., Washington,
DC 20551.
All public comments will be made
available on the Board’s Web site at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical
reasons. Accordingly, comments will
not be edited to remove any identifying
or contact information. Public
comments may also be viewed
electronically or in paper in Room MP–
500 of the Board’s Martin Building (20th
and C Streets, NW.) between 9 a.m. and
5 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT:

Kathleen C. Ryan, Counsel, Minh-Duc T.
Le, Senior Attorney, or Ellen A. Merry,
Economist, Division of Consumer and
Community Affairs, Board of Governors
of the Federal Reserve System,
Washington, DC 20551, at (202) 452–
2412 or (202) 452–3667. For users of
Telecommunications Device for the Deaf
(TDD) only, contact (202) 263–4869.
SUPPLEMENTARY INFORMATION:

I. Background
In 1994, Congress enacted the Home
Ownership and Equity Protection Act
(HOEPA) as an amendment to the Truth
in Lending Act (TILA), in response to
testimony before Congress of predatory
home equity lending practices in
underserved markets, where some
lenders were making high-rate, high-fee

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home equity loans to cash-poor
homeowners. HOEPA identifies a class
of high-cost mortgage loans through
criteria keyed to the loans’ rates and fees
and requires creditors to provide
enhanced disclosures of, and to comply
with substantive restrictions on, the
terms of those loans. Section 158 of
HOEPA also directs the Board to hold
public hearings periodically on the
home equity lending market and the
adequacy of existing regulatory and
legislative provisions for protecting the
interests of consumers, particularly low
income consumers.
The Board last held hearings under
HOEPA in 2000, at a time when
heightened concerns were being
expressed about predatory lending. The
2000 hearings focused on the Board’s
ability to use its regulatory authority
under HOEPA to address abusive
lending practices. Following those
hearings and the receipt of public
comment, the Board amended the
provisions of Regulation Z that
implement HOEPA. The revisions took
effect in October 2002.
II. Information About and Goals of the
Hearings
The 2006 hearings are open to the
public to attend. Seating will be limited,
however. Further information about the
hearings, as it becomes available, will be
posted on the Board’s Web site at http://
www.federalreserve.gov.
The Board will invite persons to
participate in panel discussions on the
topics discussed below. In addition to
the panel discussions, the Board intends
to reserve about one hour at the end of
each hearing to permit interested parties
other than those on the panels to make
brief statements. To allow as many
persons as possible to offer their views
during this period, oral statements will
be limited to five minutes or less;
written statements of any length may be
submitted for the record. Interested
parties who wish to participate during
this ‘‘open-mike’’ period may contact
the Board in advance of the hearing date
at the telephone numbers provided in
this notice, to facilitate planning for this
portion of the hearings.
The Board’s hearings will examine
developments in the home equity
lending market, with a focus on four
objectives. First, the Board wishes to
gather views on the effectiveness of the
2002 revisions to the HOEPA rules in
protecting consumers and on the rules’
impact on the availability of credit in
the higher-cost portion of the subprime
market. Second, the Board would like to
gather information that will assist its
review of Regulation Z, which
implements TILA and HOEPA. In

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particular, the Board anticipates that the
hearings will provide information that
would help in its review of the rules
governing home mortgage loans under
Regulation Z. Third, the hearings may
help identify matters for which the
Board or other entities can develop
educational materials to help consumers
make informed choices about mortgage
loans. Fourth, the Board anticipates that
the hearings may help identify matters
for which additional research about the
mortgage lending market would be
beneficial.
III. Hearing Topics
The Board consulted with its
Consumer Advisory Council (CAC),
lenders and their trade associations,
consumer advocacy groups, secondary
market participants, and other federal
agencies to identify issues the Board
might address at the hearings. The
following three topics will be discussed
at the hearings.
Topic 1: Predatory Lending: The Impact
of HOEPA Rules and State and Local
Predatory Lending Laws
For loans covered by HOEPA,
creditors must provide enhanced
disclosures to consumers three days
before consummation of the transaction,
in addition to the disclosures required
by TILA for all home mortgage loans.
HOEPA also prohibits lenders from
including certain terms in their loan
agreements with borrowers and bars
certain acts or practices in connection
with HOEPA-covered loans.
One of the goals of the hearings is to
help the Board assess the impact of the
HOEPA rules on improving consumers’
understanding of their mortgage loan
terms, and on curbing abusive practices,
while preserving access to subprime
credit. The Board is also interested in
gathering information about any new
practices that have developed since the
2000 hearings that may be abusive, and
other practices in the subprime market
that continue to raise concerns, such as
the amount and prevalence of
prepayment penalties, as well as
whether creditors make loans with
appropriate evaluation of each
borrower’s repayment ability.
In addition, the Board wishes to
gather information about how state and
local laws that address predatory
lending have affected abusive lending
practices and access to credit. Since the
2000 hearings, numerous state and local
governments have enacted laws to
address predatory lending practices,
some of which are modeled on HOEPA,
but with stricter terms. Consumer
advocates generally assert that these
laws are effective in protecting

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consumers from abusive lending, while
lenders, mortgage brokers, and investors
have expressed concerns that these laws
have adversely affected consumers’
access to legitimate subprime loans.
Available research is not definitive
regarding whether these laws have been
effective in eliminating abusive
practices and whether they have
reduced the availability of legitimate
high-cost credit.
The Board invites comment on the
following questions related to HOEPA
and predatory lending practices:
1. Have the revisions to the HOEPA
regulations (12 CFR 226.32 et seq.) been
effective in curtailing predatory lending
practices? What has been the impact of
these changes on the availability of
subprime credit? Have other abusive
practices emerged since the 2002
revisions? If so, what are they?
2. What has been the impact of state
and local anti-predatory lending laws on
curbing abusive practices? Have these
laws adversely affected consumers’
access to legitimate subprime lending?
Have certain provisions been
particularly effective, or particularly
likely to negatively affect credit
availability?
3. Since the 2002 revisions to HOEPA,
what efforts to educate consumers about
predatory lending have been successful?
What is needed to help such efforts
succeed?
4. Should the existing HOEPA
disclosures in Regulation Z be changed
to improve consumers’ understanding of
high-cost loan products? If so, in what
way?
Topic 2: Nontraditional Mortgage
Products and Reverse Mortgages Interest
Only Loans and Payment Option
Adjustable Rate Mortgages
In recent years, rising home prices
and marketing activities have led to
growing consumer demand for mortgage
products designed to minimize initial
monthly mortgage payments. As a
result, nontraditional mortgage products
have become more prevalent in the
market, including interest-only
mortgage loans, for which a borrower
pays no principal for the first few years
of the loan, and ‘‘payment option’’
adjustable rate mortgages, for which a
borrower has flexible payment options,
including a payment choice that results
in negative amortization. Some
institutions also increasingly combine
these nontraditional mortgages with
other practices, such as making
simultaneous second-lien mortgages and
allowing reduced documentation in

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evaluating an applicant’s
creditworthiness.2
Nontraditional mortgage products can
enable a broader segment of consumers
to achieve home ownership or access to
home equity. However, concerns have
been raised that such loans may expose
marginally qualified, highly leveraged
borrowers to a greater risk of default
than other products, such as a
traditional thirty-year, fixed rate
mortgage, in the event of widespread or
regional cooling in housing prices or
when rates adjust upward. These
products and practices are being offered
to a wider spectrum of borrowers,
including subprime borrowers and
others who may not otherwise qualify
for more traditional mortgage loans or
who may not fully understand the risks
of nontraditional mortgages.
Nontraditional mortgage products are
more complex than traditional fixed rate
products and adjustable rate products
and also can present greater risks of
payment shock and negative
amortization.
While the Board’s Regulation Z
requires creditors to provide disclosures
to consumers in connection with
mortgages, including nontraditional
mortgages, consumer groups and others
have stated that additional disclosures
are needed.
The Board seeks public comment on
the following questions regarding
nontraditional mortgage products:
1. Do consumers have sufficient
information (from disclosures and from
advertisements) about nontraditional
mortgage products to understand the
risks (such as payment increases and
negative amortization) associated with
them?
2. Should any disclosures required
under Regulation Z be eliminated or
modified because they are confusing to
consumers, unduly burdensome to
creditors, or are simply not relevant to
nontraditional mortgage products? Do
the required disclosures present
information about nontraditional
mortgage products in an understandable
manner?
3. Are there some Regulation Z
disclosures that should be provided
earlier in the mortgage shopping and
application process to aid consumers’
2 Concerns about nontraditional mortgage
products led the Board, the Office of the
Comptroller of the Currency, the Federal Deposit
Insurance Corporation, the Office of Thrift
Supervision, and the National Credit Union
Administration to jointly propose Guidance on
Nontraditional Mortgages on December 20, 2005.
The proposed Guidance addresses loan terms and
underwriting standards; portfolio and risk
management practices; and consumer protection
issues.

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understanding of key credit terms and
costs for these products?
Reverse Mortgages. Reverse mortgages
have increased in popularity in the last
5 years. For example, according to the
National Reverse Mortgage Lenders
Association, the number of reverse
mortgages insured by the Department of
Housing and Urban Development (HUD)
(representing 90 percent of reverse
mortgages) grew from about 8,000
originations in 2001 to about 43,000
originations in 2005. Reverse mortgages
allow borrowers to convert equity in
their homes to a loan, which need not
be repaid until the borrower dies or sells
the home.
Reverse mortgages can have relatively
high up front fees (e.g., for insurance
and origination costs) and are
complicated transactions. Although
Regulation Z requires lenders to provide
special disclosures for reverse mortgage
transactions (12 CFR 226.33), some
concerns have been raised that
consumers may not understand the
terms of these products. In the HUDinsured reverse mortgage program,
borrowers must receive pre-application
counseling from a counselor approved
by HUD.
The Board seeks comments on the
following questions related to reverse
mortgages:
1. Are current Regulation Z
disclosures adequate to inform
consumers about the costs of reverse
mortgages and to ensure that they
understand the terms of the product?
2. Has counseling (under the HUD
program) been effective in educating
consumers about reverse mortgages and
in preventing abuses from occurring?
3. In reverse mortgages that are not
insured by HUD, is counseling offered
to applicants? Do borrowers of these
loans have difficulty understanding
their loan terms or encounter other
difficulties? Do these lenders employ
alternate disclosure approaches that
have proven to be effective?
Topic 3: Informed Consumer Choice in
the Subprime Market
The growth of the subprime market
over the last several years has expanded
access to credit, helping to increase
homeownership and opportunities for
consumers to use the equity in their
homes. However, the growth of the
subprime market has also raised public
policy concerns. Among the concerns is
whether consumers who obtain higherpriced loans are sufficiently informed
about mortgage products, their options,
how to effectively shop for the best rates
and terms, and ultimately how to obtain
the best available mortgage for their
needs.

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In addition, the variation in prices
paid by some borrowers has led to
concerns that price disparities may
reflect illegal discrimination rather than
legitimate cost and risk-related factors.
Home loan price data disclosed in 2005
for the first time under the Home
Mortgage Disclosure Act show that
African-American and Hispanic
borrowers obtain higher-priced
mortgage loans more frequently than do
white and Asian borrowers, and obtain
loans from lenders that specialize in
higher-priced loans more frequently
than do other groups.3 These differences
may reflect legitimate distinctions
among the credit characteristics of
borrowers, or may be the result of other
factors. The Board would like to use the
hearings to gather information about
borrowers’ knowledge and shopping
behavior in the subprime market that
may stimulate additional research in
this area.
The growth of the subprime market
has also raised concerns about
consumers’ understanding of the role of
mortgage brokers. Some consumer
advocates have asserted that because
brokers’ fees are based on the amount of
a loan, brokers may encourage
consumers to obtain mortgage products
that enable consumers to obtain larger
loans without providing information
about the risks for those products or
other mortgage products that might
better meet the consumer’s needs. The
hearings will be used to gather
information about the role of brokers, to
assist the Board in identifying new
consumer education strategies, and to
enable the Board to provide informed
consultation with Congress and other
agencies on possible legislative and
non-legislative measures that might
improve consumer understanding and
protection in this area.
The Board solicits comment on the
following questions regarding
consumers in the subprime loan market:
1. How do consumers who get higherpriced loans shop for those loans? How
do they select a particular lender?
2. What do consumers understand
about the role of mortgage brokers in
offering mortgage products? Has their
understanding been furthered by staterequired mortgage broker disclosures?
3 In the case of conventional first-lien homepurchase loans extended in 2004, 32.4 percent of
African-Americans and 20.3 percent of Hispanic
whites obtained higher priced-loans, compared to
8.7 percent of non-Hispanic whites and 5.9 percent
of Asians. More information about these findings
and the HMDA data in general, is available on the
Board’s Web site at http://www.federalrserve.gov/
pubs/bulletin/2005/summer05_hmda.pdf, and
http://www.federalreserve.gov/boarddocs/press/
bcreg/2005/20050331/default.htm.

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Federal Register / Vol. 71, No. 87 / Friday, May 5, 2006 / Notices

3. What strategies have been helpful
in educating consumers about their
options in the mortgage market? What
efforts are needed to help educate
consumers about the mortgage credit
process and how to shop and compare
loan terms and fees?
4. What are some of the ‘‘best
practices’’ that lenders, mortgage
brokers, consumer advocates and
community development groups have
employed to help consumers
understand the mortgage market and
their loan choices?
5. What explains the differences in
borrowing patterns among racial and
ethnic groups? How much are the
patterns attributable to differences in
credit history and other underwriting
factors such as loan-to-value? What
other factors may explain these
patterns?
By order of the Board of Governors of the
Federal Reserve System, May 1, 2006.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E6–6803 Filed 5–4–06; 8:45 am]
BILLING CODE 6210–01–P