FRB: Federal Reserve Bank of Chicago - June 7, 2006 - Transcript

Building Sustainable Homeownership:
Responsible Lending and Informed Consumer Choice

Federal Reserve Bank of Chicago
230 South LaSalle Street, Chicago, Illinois 60604
June 7, 2006

Agenda | Transcript

Pages 1-25 | 26-50 | 51-75 | 76-100 | 101-125 | 126-150 | 151-175 | 176-200 | 201-225 | 226-250 | 251-267

Transcript	Line	Page
the rates are a big concern -- but the fact that	1	76
they are being targeted to vulnerable populations	2	76
is where we have our most significant worries.	3	76
GOVERNOR OLSON: Anybody want to comment on	4	76
that?	5	76
MS. BRAUNSTEIN: I have a question. One of the	6	76
things we heard when we did these hearings years	7	76
ago over and over and over again consistently were	8	76
a lot of concerns expressed about single premium	9	76
credit life. And we tried, obviously, to address	10	76
that in the last revisions of the HOEPA rules. And	11	76
I just wanted to kind of do a check here, because	12	76
nobody raised it in morning. So does that mean we	13	76
did a good job of addressing it?	14	76
MS. THOMPSON: Yes. They worked.	15	76
MR. JAMES: It did work. We do not see it	16	76
anymore. And if ever there was a risk that was not	17	76
worth insuring --	18	76
MR. CHANIN: Can we conclude the hearing on	19	76
that thought?	20	76
MR. ANDREWS: I even complimented you on that	21	76
in my written statement.	22	76
MR. CHANIN: Let me follow up on that a little	23	76
bit. Non-documented income and fraud in terms of	24	76
stated income, I hazard to say there may be a	1	77
consensus, but at least there is a point of view	2	77
that that may be an issue for us to study a little	3	77
bit more. And Sandy mentioned the credit insurance	4	77
issue.	5	77
Are there other specific practices	6	77
that come to mind in terms of significant either	7	77
new problems or recurring problems of a level of	8	77
specificity such as that, in terms of abuses other	9	77
than kind of everyday products, if you will?	10	77
MR. JAMES: I think right now we do have	11	77
some -- a couple of serious areas. One is I think	12	77
you have to look at the structure of the new	13	77
variable rate products. The hybrid loans, the 228s	14	77
that have a three year prepayment penalty that	15	77
effectively traps the borrower into a year of	16	77
complete risk inversion. Where there is absolutely	17	77
no risk to the lender and absolute risk to the	18	77
borrower. And that is redundant in the variable	19	77
rate products as the new ones emerge.	20	77
I could go into depth with you on	21	77
what we are seeing, and we are just unwrapping	22	77
these things and they are new to us. But we are	23	77
horrified.	24	77
MR. CHANIN: So the abuse is the prepayment	1	78
penalty structure for those transactions?	2	78
MR. JAMES: On the 228 with a three year	3	78
prepay, the abuse is obvious.	4	78
MS. THOMPSON: I would echo what Tom said, that	5	78
we are seeing really an explosion of abuse of the	6	78
adjustable rate mortgages. The increasingly exotic	7	78
ones where, as Governor Olson says, the information	8	78
symmetries are really unresolvable there between	9	78
the lender and the consumer.	10	78
It's an area where I don't think we	11	78
are going to solve this problem with financial	12	78
education. And I'm seeing lots and lots of	13	78
adjustable rate mortgages being sold to people with	14	78
prepayment penalties so that they are -- it's going	15	78
to be fully indexed and there is no way they are	16	78
going to be able to make those payments.	17	78
The other thing I'm seeing and I	18	78
think is starting to be an increasing problem,	19	78
partly because there has been so much equity, is we	20	78
are seeing increasing amounts of problems in	21	78
purchase originations of loans. And because there	22	78
are not decision rights and because many of the	23	78
state laws don't cover those loans, it's more like	24	78
the Wild West. You see very high interest rates,	1	79
you see very high points and fees. They are not	2	79
effective tools for consumers to preserve their	3	79
rights to homeownership if the loan is abusive.	4	79
And coupled with that we are seeing	5	79
for years now, and this isn't news, extremely	6	79
inflated appraisals where even a modicum of	7	79
checking by anybody would show that that appraisal	8	79
is inflated. It's 10 times what the assessed	9	79
valuation is, it's, you know, 20 times what the	10	79
house was bought for two months ago. It's not in	11	79
line with, you know, if you go on to any of the	12	79
online appraisal services, it's not in line with	13	79
any of the values given there. You know, there are	14	79
desk review appraisals that are done which shows	15	79
the original appraisals used are completely out of	16	79
whack.	17	79
MR. CHANIN: On the other side, if there are	18	79
any comments on prepayment penalties, and are you	19	79
seeing a change in the marketplace in terms of use	20	79
of those for subprime loans? Is there a scenario	21	79
where they are not appropriate in terms of, for	22	79
example, for certain ARM products and the like?	23	79
MR. ANDREWS: I'll start and say that again, on	24	79
the prepay area I think this is a fine area for the	1	80
Fed to do a little study on. Because we do have	2	80
considerable dispute between the consumer advocates	3	80
in the industry in this area.	4	80
Again, as I said earlier, you can	5	80
certainly have an abuse of prepay. We've all seen	6	80
that. As to the things that can be done, limiting	7	80
the time and amount certainly makes some sense.	8	80
And with respect to ARMs, the first	9	80
adjustment date certainly is something that most of	10	80
us in the industry would support. Basically what	11	80
is being suggested in Washington, certainly on the	12	80
legislative front, is require a choice with or	13	80
without it, give the consumer some adequate pros	14	80
and cons so that they can make a more informed	15	80
choice. Limit the time to three years maximum	16	80
first adjustment date and limit the amount.	17	80
Now, the amount, like a three-two-one	18	80
type formula, the key is to preserve it so that	19	80
more consumers can have the option of lowering	20	80
their rate by a half a point or a point. And we	21	80
need people to look at both sides of that one.	22	80
MR. WILLIAMS: I would say from the secondary	23	80
market standpoint the market has matured over the	24	80
past ten years or so where you're seeing -- someone	1	81
had a meeting the other day with a consumer group	2	81
and they were telling us that the secondary market,	3	81
that is the one that is demanding that the	4	81
pre-penalty be put in place. I would say not	5	81
unequivocally, maybe in some cases that depends on	6	81
the structure of the deal.	7	81
But by and large the market has	8	81
matured to the point where assessment of risk is	9	81
not an essential factor looked into. And when our	10	81
guys are looking into it, if it doesn't violate any	11	81
laws, then it's there. And you put that into the	12	81
pool and you account for it appropriately, you can	13	81
say, well, there is a two year prepayment penalty	14	81
and this are how these products typically perform.	15	81
And therefore, I'm going to assign it this amount	16	81
of risk. But it comes in, then you do essentially	17	81
the same thing.	18	81
But I want to go to this other larger	19	81
issue of whether or not there are any specific	20	81
products that need to be identified. I want to say	21	81
just on behalf of the secondary market, I know I	22	81
get into trouble when I say this but I want to say	23	81
it anyway because I want to be consistent.	24	81
Typically if there is a product that	1	82
is not supposed to be made, our firms won't buy	2	82
them. If there is a product that doesn't violate	3	82
the law, our firms are going to purchase them.	4	82
And the reasons why they purchase	5	82
them is because they will be able to adequately	6	82
assess the risk associated with that product, that	7	82
pool of products. They will be able to get a	8	82
rating from a credit rating agency. And the	9	82
investors internationally, so not just a domestic	10	82
market but it's an international market, will want	11	82
to purchase them based on that particular risk	12	82
assessment and rating that they got from the credit	13	82
rating agencies.	14	82
So to the extent that there are	15	82
products out there that are abusive, we have been	16	82
asking this question, I personally have been asking	17	82
this question for seven years. Let us know what	18	82
those products are and those products need to be	19	82
addressed either through regulatory action or via	20	82
legislative action.	21	82
GOVERNOR OLSON: Mike, let me follow-up. This	22	82
is a real key question, and it's a real key issue.	23	82
And I think we need to -- and it's brand new.	24	82
Forty years ago this year I started in the banking	1	83
industry and I haven't seen much that is really	2	83
genuinely new over that time.	3	83
But a secondary market buying a	4	83
nonconforming product is really one of the	5	83
significant changes. And we are at the front end,	6	83
all of us, of fully understanding all of the	7	83
implications of that process.	8	83
What can you tell us about -- and let	9	83
me -- the essence of the question is this. Is risk	10	83
being appropriately priced? And what happens to	11	83
the end purchaser of a product, particularly the	12	83
subprime product, when they haven't taken into	13	83
consideration all of the risks embedded into that	14	83
product or in that portfolio? Can you tell us a	15	83
little bit about how the subprime product gets	16	83
evaluated with respect to risk and price, and how	17	83
those products have performed?	18	83
There is enough history now so that	19	83
we should have some performance.	20	83
MR. WILLIAMS: Absolutely. I would like to	21	83
start out by saying that the products have actually	22	83
performed quite well. And I think they've	23	83
performed in line with you're sort of conforming	24	83
MBS products or CMBS products, commercial mortgage	1	84
products. And the reason for that is because you	2	84
have a geographically dispersed pool from which to	3	84
choose. So you can choose from states and	4	84
localities across the country.	5	84
So when you're putting together a	6	84
pool, 10,000, 20,000 loans, it's not going to be	7	84
localized. It's not going to be all from Illinois,	8	84
all from the Midwest in most instances. It's going	9	84
to be some from the Midwest, some from the West	10	84
Coast, some from the south, some from the	11	84
southeast. So that is the first risk assessment.	12	84
The second risk assessment is by the	13	84
loan future. When you try to put a product	14	84
together you figure out whether or not you have	15	84
adjustable rate mortgages, whether or not you have	16	84
sort of longer term, 15 and 30 years products, and	17	84
you get those like interests together and you	18	84
assess risk that way.	19	84
You assess risk -- and again, you see	20	84
a pattern developing here. These are all numbers	21	84
driven. These are not driven by whether or not you	22	84
can detect fraud, whether or not there is a defined	23	84
benefit to the borrower or whether or not there was	24	84
some deceptive marketing involved. So all of these	1	85
things are based on the numbers that are presented	2	85
in the loan file. You have to take -- it tells you	3	85
what all the loan features are. It enumerates	4	85
them. You do your due diligence, you sample, and	5	85
you send it out to a secondary specialist who	6	85
actually does sampling as well, and they perform a	7	85
secondary level of pool loan due diligence.	8	85
And then you take that and you go to	9	85
the credit rating agencies and you say to them here	10	85
is what we have. We have a pool of 10 to 20,000	11	85
loans, they are geographically diverse, here is	12	85
where they are from, here are the products that	13	85
dominate in this market, and here is what we think	14	85
in most instances the ceiling will be probably a 2	15	85
percent default risk. That's acceptable, right?	16	85
So you have a default risk, you have a repayment	17	85
risk, and you have to be able to enumerate that to	18	85
the credit rating agencies in order to get a	19	85
rating.	20	85
Once you have done that, then you go	21	85
and you get that rating. And typically these	22	85
products are highly rated because the performance	23	85
has been so high and because the assessment of risk	24	85
has been so high.	1	86
GOVERNOR OLSON: And we are still talking about	2	86
the subprime product. So let me bridge this now.	3	86
The fact that the subprime product in	4	86
the aggregate performs well has a lot of societal	5	86
value. Because it means the mortgages are going to	6	86
a broader segment of the population and those	7	86
mortgages are performing.	8	86
Now, that is of no consolation to the	9	86
borrower who is being taken advantage of. So	10	86
whereas in the aggregate we can see that the value	11	86
is great, there are clear instances where people	12	86
are being abused. So I think that is exactly the	13	86
point in which we have been trying for years, and	14	86
all of us I think collectively have been trying to	15	86
get at, is how we can retain the value of the	16	86
advances that have taken place in the market and	17	86
the products, but yet isolate the abusers. And	18	86
it's a struggle to do it.	19	86
But I would be interested if there is	20	86
anything we haven't said that we want to follow up	21	86
on with respect to that.	22	86
MR. JAMES: I just want to caution, because	23	86
when we litigated DanCo (phonetic) and we had the	24	86
opportunity to literally take the entity apart and	1	87
examine it in the bankruptcy, we could see that the	2	87
subprime products that had been pooled as subprime	3	87
were primarily prime. The borrower pool was	4	87
consistently better than 50 percent A credit.	5	87
GOVERNOR OLSON: You mean it was -- the loan	6	87
characteristics were prime, but the pricing was	7	87
subprime?	8	87
MR. JAMES: The borrowers were prime and the	9	87
products were subprime. So you can get a very,	10	87
very profitable product by selling prime borrowers	11	87
subprime products, which is exactly what your	12	87
statistics are showing with respect to minority	13	87
borrowers.	14	87
MR. WILLIAMS: Is that possible? I mean, a lot	15	87
of things are possible. But I have never seen, and	16	87
again I would love to see a study or -- it doesn't	17	87
have to be formal, just see the numbers on that,	18	87
where you would say here is a pool and this is	19	87
consistent across the board, that that is not an	20	87
isolated incident.	21	87
The other part of that is from a	22	87
secondary market standpoint, how does one know that	23	87
is a prime borrower and that it shouldn't be in the	24	87
subprime pool without actually having to go back	1	88
and do individual loan level due diligence? And if	2	88
that is the case, and if that is the answer, then	3	88
you say to yourself you're putting significant	4	88
constraint on the secondary market or you're going	5	88
to have to shift the costs associated with that	6	88
down to the borrower. And at the end of the day,	7	88
is the borrower benefited by having less loans	8	88
available?	9	88
MR. ANDREWS: From the lender's perspective, we	10	88
think, again, there are people out there that are	11	88
put into a subprime products where they shouldn't	12	88
be. And that is something that both the lenders	13	88
and the regulators have to see that that doesn't	14	88
occur.	15	88
That said, though, we strongly	16	88
disagree with you that there is tremendous	17	88
widespread existence of that. We've got in terms	18	88
of when the industry looks at its numbers, one	19	88
member testified on this I guess about a year ago	20	88
and showed their international numbers. It lays it	21	88
out, at least in this company, this is one of the	22	88
biggies, it just doesn't -- it's not there in the	23	88
numbers. So there is again something that	24	88
objective study on the part of the Fed might be a	1	89
good thing.	2	89
And related to that, can I make one	3	89
comment that there has been this discussion of	4	89
steering and up-selling and so forth. And one of	5	89
the things we hear a lot in the public debate is	6	89
that lenders are putting borrowers -- lenders and	7	89
brokers are putting borrowers into loans that are	8	89
more expensive than they qualify for. And the	9	89
typical example was thrown out there is that when a	10	89
broker has a YSP in the deal.	11	89
And one thing that we think there is	12	89
a lot of confusion on there -- Jim, you may want to	13	89
comment -- is that the "qualify for" is very	14	89
different from "can obtain the loan for". The	15	89
wholesale rate that is quoted by the lender to the	16	89
broker doesn't take into account the legitimate and	17	89
necessary work that the broker has to do and the	18	89
compensation that they need to be paid for that.	19	89
They can be paid several ways. One of which is	20	89
through YSP, one of which is through up-front	21	89
points and fees.	22	89
But the point I'm trying to make is	23	89
that you just can't simply say that because the	24	89
wholesale rate is quoted, that you're going to get	1	90
that. If you go to the lender to their retail	2	90
shop, you're generally going to have to pay more	3	90
than if you go to the broker. The lender's costs	4	90
of hiring.	5	90
MR. NABORS: I appreciate that. I wanted to	6	90
talk about flipping, as long as we come back to it,	7	90
yeah.	8	90
Not all originators offer all	9	90
products. There are brokers that only originate	10	90
FHA, VA, conforming loans. There are brokers that	11	90
only originate subprime products. And if the	12	90
customer comes in and he's applying for a loan and	13	90
the broker gives him the best product they have	14	90
available and it's a subprime product, the customer	15	90
can chose it or can shop and go somewhere else.	16	90
That's their right, okay.	17	90
And with respect to yield spread	18	90
premium, I think particularly consumer advocates,	19	90
with the exception of Margo Saunders of the	20	90
National Consumer Law Center, doesn't like yield	21	90
spread premium. But yield spread premium is once I	22	90
set my fee, the consumer, you can pay it three	23	90
ways. You can pay it up front in cash. I always	24	90
found that people that wanted to borrow money	1	91
usually don't want to pay any money out-of-pocket	2	91
to borrow it. You can pay out of the proceeds of	3	91
the loan, you can pay it through a higher rate	4	91
yield spread premium, or a combination of some out	5	91
of the proceeds and some through yield spread	6	91
premium.	7	91
It's still my fee. It's not an	8	91
additional kickback. It is part of my compensation	9	91
that -- and by the way, yield spread premium, the	10	91
broker compensation along with the Realtor is the	11	91
only compensation that is fully disclosed to the	12	91
consumer. All the other ones are hidden through	13	91
service release premiums and other forms. The	14	91
broker discloses what their fee is.	15	91
I have to get to the flipping thing	16	91
because this has been a personal thing for me. I	17	91
think one of the things you can do is require a	18	91
chain of title for like the last three to five, ten	19	91
years, whatever you think. So that would be good	20	91
for the consumer, that would be good for the	21	91
broker, that would be good for the lender so they	22	91
can see how this property has increased.	23	91
GOVERNOR OLSON: A chain of title disclosure?	24	91
MR. NABORS: Even just on the title search is	1	92
going to do wonders for the lender that is	2	92
reviewing these things before final sign off.	3	92
Because if they sees this thing has changed hands	4	92
four times in the last nine months and has went	5	92
from 40,000 to 200,000, they are going to realize	6	92
they are going to have a problem.	7	92
But it would be good for the consumer	8	92
to know. You realize two years ago, and it's not	9	92
California, let's say it's Cleveland, Ohio, this	10	92
property sold for 28 and you're now paying 130. We	11	92
need to look and see how did that happen. Also, I	12	92
think the knowledge of that will effect the	13	92
appraised value of it, because the appraiser will	14	92
know that there is going to be a chain of title	15	92
looked at.	16	92
One other quick thing. We support	17	92
giving the customers the right to buy out	18	92
prepayment penalties. Some even on a 228 with a	19	92
three year prepayment penalty may chose that	20	92
product. They realize they may be getting the	21	92
lower rate and they are planning on only being in	22	92
that home three years. We are really big on giving	23	92
them as many choices as possible and not	24	92
restricting their rights.	1	93
So I know I jumped all over the place	2	93
and I apologize.	3	93
GOVERNOR OLSON: In Illinois, when you purchase	4	93
a mortgage, is there a title search done in	5	93
addition to title insurance? Are they done	6	93
together or does one replace the other? What is the	7	93
prevalence in Illinois?	8	93
MR. JAMES: There is almost uniformly now a	9	93
title search performed that shows chain of title,	10	93
what loans or encumbrances have been in place.	11	93
We are relatively unsophisticated in	12	93
using that information. The title companies are	13	93
not, but we are, certainly law enforcement is. We	14	93
are just starting to develop some expertise at	15	93
looking at how property has seasoned, how loans	16	93
have seasoned, and, you know, get some interpretive	17	93
ability in that way. But we do it now regularly	18	93
when we get a complaint with a loan file.	19	93
GOVERNOR OLSON: Are residences primarily	20	93
Torrens or abstract title?	21	93
MR. JAMES: It's abstract now. We have moved	22	93
away from Torrens completely. The title companies	23	93
did that, and so we are with basically I think	24	93
there are 22 licensed title companies operating in	1	94
Illinois, one of course is Chicago Title and Trust.	2	94
MS. BRAUNSTEIN: While we are talking about	3	94
flipping, we did make some adjustments in the last	4	94
couple of revisions to try to prevent the flipping	5	94
of the same loan over and over in short periods in	6	94
order to generate additional fees. Has that been	7	94
effective in terms of --	8	94
MR. JAMES: I'd say it really depends on the	9	94
market where there is tremendous market	10	94
appreciation as there is, say, in the inner city of	11	94
Chicago and city and suburbs actually, and on the	12	94
coasts. Flipping goes on as it's always gone on	13	94
because there is -- it's appreciation driven to a	14	94
large extent.	15	94
The other thing is the HOEPA triggers	16	94
are very fine, so they don't capture of a lot of	17	94
the would-be flipping that occurs. So you've got	18	94
to think of HOEPA in very much the abstract in	19	94
terms of taking a bead on an answer to that	20	94
question.	21	94
MS. BRAUNSTEIN: I was hoping for the solemn	22	94
endorsement.	23	94
MR. JAMES: No.	24	94
MS. BRAUNSTEIN: Not with flipping, huh? Okay.	1	95
MR. JAMES: In fact, we are litigating a case	2	95
right now with an 80-something-year-old who has	3	95
been flipped through subprime products once each	4	95
year, with an incremental increase that covers fees	5	95
and points. And she's a ward of this state and	6	95
Susan out there is litigating that with me. And we	7	95
see something like that, we see Chase holding the	8	95
bag at the very end when the property is upside	9	95
down.	10	95
MS. THOMPSON: We also see lots of cases of	11	95
continued loan flipping still. Sometimes even well	12	95
beyond what the house is worth.	13	95
MS. BRAUNSTEIN: Just in general, I know we are	14	95
running short on time, but we did lower -- and I	15	95
heard you this morning that in terms of at least	16	95
this side of the room there was a feeling that the	17	95
triggers still are too high, we are not capturing	18	95
enough of the loans. That they should still be	19	95
lower.	20	95
But I was just wondering just for a	21	95
general sense on has it made a difference, since we	22	95
did lower the triggers five years ago, has it made	23	95
a difference on the industry side? Is there any	24	95
feeling on the part of the industry that there is	1	96
any increased burden associated with us having	2	96
lowered the triggers?	3	96
And then also, are people finding	4	96
ways to avoid the triggers and still making high	5	96
cost loans, but then not being called HOEPA loans	6	96
because there are loopholes and things that maybe	7	96
we've missed? So those kind of three general kind	8	96
of questions, and I don't care which side goes	9	96
first.	10	96
MR. LINDSEY: I guess I can address that in	11	96
part, because it sort of goes back to some of the	12	96
things I was saying in my earlier comments. Again,	13	96
in Illinois, at least since 2001, virtually no	14	96
HOEPA loans have been made. Because our triggers	15	96
here both on the fees and the interest rate side	16	96
are lower.	17	96
MS. BRAUNSTEIN: Because of the state law.	18	96
MR. LINDSEY: Right. So those are the	19	96
triggers. Sometimes it's just under, sometimes we	20	96
think they get it wrong and it generates some	21	96
litigation. So for the most part, loans just	22	96
aren't covered by HOEPA.	23	96
Occasionally we might see one that is	24	96
like on an 80/20 loan, and the 20 at the end has an	1	97
interest rate that is high enough to be a HOEPA	2	97
loan. So I think that the reason that the tweak of	3	97
the single premium credit insurance mattered and	4	97
worked and helped was because it was really, you	5	97
know, one piece of a much larger campaign. That	6	97
particular product got such bad press and was	7	97
litigated and was also addressed by the Feds, so	8	97
that really made a difference.	9	97
And I think things like flipping,	10	97
because so few of those loans are covered by HOEPA,	11	97
it really hasn't made that much of a significant	12	97
difference in a place like Illinois. So I think	13	97
that is sort of the difference in those two.	14	97
MR. JAMES: I would just like to point out	15	97
there is a loophole that I have seen in one of the	16	97
major vertically integrated subprime lenders based	17	97
here in Illinois that we had the opportunity to	18	97
sue.	19	97
GOVERNOR OLSON: Whose name rhymes with --	20	97
MR. JAMES: And the remarkable thing was we got	21	97
a file where the TILA disclosed an interest rate, I	22	97
mean an APR that was below the note rate, and I	23	97
wondered how could that happen. So I called	24	97
Kathleen Keiths (phonetic), who explained that	1	98
because the loan was structured so that if the	2	98
consumer paid on time, in the subprime market of	3	98
course, each payment for 12 consecutive months, the	4	98
interest rate would go down by -- the 12 or 13	5	98
percent interest rate would go down by a quarter	6	98
point. In each of the five successive years it	7	98
produced APR that was actually below the note	8	98
rate. Though if I subpoenaed that outfit today and	9	98
asked for a single loan that had performed that	10	98
way, I think you know what the answer would be.	11	98
MR. ANDREWS: From certainly a lender's	12	98
perspective on the net benefit test, I mean, the	13	98
reality is, as Dan said, most of the loans are not	14	98
made. Therefore, the test doesn't apply.	15	98
That said, as I indicated earlier, I	16	98
think you find today that most lenders are applying	17	98
their own internal benefit test to all the loans	18	98
they are making, certainly to the nonprime level.	19	98
Questions arise, the Feds wording I think was the	20	98
borrower's interest, essentially the totality of	21	98
the circumstances. As you know, there is a debate	22	98
going on worldwide what is the magic word, the	23	98
tangible net benefit, the reasonable benefit,	24	98
whatever.	1	99
I think at the end of the day having	2	99
some type of a reasonable benefit test is a good	3	99
thing, and the question is how it should be	4	99
worded. And the lenders get concerned over when	5	99
the word "net" is used, because that suggests an	6	99
economic mathematical configuration in our loans,	7	99
and many times there are other factors that weigh	8	99
in. So the totality of the circumstances just, you	9	99
know, it works.	10	99
GOVERNOR OLSON: One final comment on	11	99
anything? Jim?	12	99
MR. NABORS: Yes, on the HOEPA loans aren't	13	99
being made in Illinois. Are they not being made by	14	99
broker and lenders in Illinois, and are they still	15	99
being made over the Internet? Because a lot of	16	99
Internet lenders are pretty much ignoring all state	17	99
laws, all federal laws, just doing what they want.	18	99
As far as lowering the triggers, when	19	99
you lowered the triggers you captured more of the	20	99
market, and NAM supported the triggers that you	21	99
came up with.	22	99
Our concern is if HOEPA has now	23	99
become an usury ceiling, nobody wants to go up over	24	99
it, and if you lower it more, you will capture more	1	100
loans. You will keep more people from having the	2	100
possibility of ever owning a home.	3	100
Now, no matter what level they're at,	4	100
some people are going to succeed and some are going	5	100
to fail owning a home, all right. Our concern is	6	100
that by putting us in a situation of prohibiting	7	100
people from the opportunity of owning a home,	8	100
particularly in the new emerging markets, and	9	100
basically tell them, "You're going to be a renter	10	100
for life because we feel you might not succeed. So	11	100
since you might fail, we are not going to give you	12	100
the opportunity," is wrong.	13	100
GOVERNOR OLSON: I'm going to stop you there.	14	100
Paulette, did you have one final	15	100
question?	16	100
MS. MYRIE-HODGE: I don't have a final	17	100
question, but I have a comment regarding education	18	100
for consumers, and also just my concern about the	19	100
new state laws that have come out. As I said	20	100
before, our banks do well, so we do have a lot of	21	100
concerns. But I do talk to other regulators	22	100
because we do need to talk about these things. And	23	100
I only have one institution in my portfolio that	24	100

McCorkle Court Reporters, Inc., Chicago, Illinois, 312-263-0052

Pages 1-25 | 26-50 | 51-75 | 76-100 | 101-125 | 126-150 | 151-175 | 176-200 | 201-225 | 226-250 | 251-267

2006 Hearings

Building Sustainable Homeownership: Responsible Lending and Informed Consumer Choice

Federal Reserve Bank of Chicago 230 South LaSalle Street, Chicago, Illinois 60604 June 7, 2006

Building Sustainable Homeownership:
Responsible Lending and Informed Consumer Choice

Federal Reserve Bank of Chicago
230 South LaSalle Street, Chicago, Illinois 60604
June 7, 2006