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
has a concern about a particular state law.	1	101
But I have talked to other	2	101
regulators, and their concern was that the state	3	101
laws, the way they are being set up, are too	4	101
restrictive and they are kind of pushing them out	5	101
of some markets because of the kind of restrictions	6	101
they have on them. And I would just like to hear	7	101
what you guys think about that.	8	101
GOVERNOR OLSON: We don't have time for a	9	101
response, unfortunately. But you can include that	10	101
your written response.	11	101
What is the cut off date?	12	101
MS. BRAUNSTEIN: August 15.	13	101
GOVERNOR OLSON: This has been an excellent	14	101
panel, I would like to thank everybody.	15	101
Just in brief summary, you can	16	101
imagine from our monitory policy perspective, that	17	101
the Board of the Federal Reserve tends a lot of	18	101
time to focus on mortgage instruments, the mortgage	19	101
market. It has been a tremendous engine of	20	101
economic growth and the participants in the	21	101
mortgage field have helped make it that. But it	22	101
has raised significant and serious issues that we	23	101
want to be sure we are alert to as well.	24	101
So thanks to all of you for your	1	102
participation. We will now take a 15 minute	2	102
break. We will be back here at 10:45 and we will	3	102
move on to the second panel. Thank you very much.	4	102
(Whereupon, a short break was	5	102
taken.)	6	102
GOVERNOR OLSON: Just as a reminder to	7	102
everybody, we are taking pains to stay on	8	102
schedule. In part out of respect for the people	9	102
that have made specific plans to be here to	10	102
participate on this panel, but also, very	11	102
importantly, to make sure that we have time at the	12	102
end for people who want to make comments.	13	102
And for those of you who may have	14	102
come in late and want to participate beginning at	15	102
3:00 o'clock, make sure that you have registered	16	102
that intent outside so that you can be recognized.	17	102
And we will move through this panel.	18	102
This panel has a different perspective. It will be	19	102
very interesting. Not exactly counterpoint, but it	20	102
will be sort of a parallel look at the issues from	21	102
people who have examined these issues from their	22	102
perspective.	23	102
And we will do it in the same	24	102
progression. We will go clockwise starting with	1	103
Scott Mason will be the first speaker, followed by	2	103
Kenneth Posner, Anthony Pennington-Cross. We will	3	103
then move to Keith Ernst, Roberto Quercia -- he	4	103
told me he puts the emphasis on the first	5	103
syl-able -- and then Michael Staten.	6	103
So we will go with you to begin,	7	103
Scott. Again, five minutes.	8	103
MR. MASON: Thank you, Governor Olson. My name	9	103
is Scott Mason, I'm a director of structured	10	103
finance ratings at Standard and Poor's, a division	11	103
of McGraw Hill Company. And actually, I'm very	12	103
pleased to participate this morning in this	13	103
hearing.	14	103
Since beginning our credit rating	15	103
activity in 1916, Standard and Poor's has rated	16	103
hundreds of thousands of securities in corporate	17	103
and governmental issue. We also assess the credit	18	103
quality of and assign credit ratings to, among	19	103
other types of assets, mortgage and asset-backed	20	103
securities.	21	103
Over the last century we have taken	22	103
great care to insure that our credit ratings are	23	103
viewed by the market as highly credible and	24	103
relevant. And we will continue to review our	1	104
practices and policies and our procedures on an	2	104
ongoing basis to insure that integrity,	3	104
independence, objectivity, transparency,	4	104
credibility and quality continue as fundamental	5	104
premises of our operations.	6	104
As an independent and objective	7	104
commentator on credit risk, we generally do not	8	104
take a position on questions of public policy.	9	104
Thus, while we strongly support efforts to combat	10	104
predatory lending and other abusive lending	11	104
practices, we do not take a position on what	12	104
legislative and regulatory actions are best to	13	104
eradicate those practices.	14	104
Nevertheless, we have been closely	15	104
following legislative and regulatory initiatives	16	104
designed to combat predatory lending in order to	17	104
determine how those laws might affect our ability	18	104
to rate securities backed by residential home	19	104
mortgage loans.	20	104
Anti-predatory lending laws,	21	104
including 2002 amendments to HOEPA and the	22	104
proliferation of mini-HOEPAs, basically the laws	23	104
and statutes enacted by states and local	24	104
governments, are designed to protect borrowers from	1	105
unfair, abusive and deceptive lending practices.	2	105
For several reasons, these laws may also have a	3	105
negative affect on reducing the availability of	4	105
funds to borrowers who need cash to support their	5	105
life-styles.	6	105
For example, lenders might reduce	7	105
their lending in a given jurisdiction to protect	8	105
themselves from being found in violation of the	9	105
jurisdiction's anti-predatory lending laws or	10	105
because lending in accordance with the laws'	11	105
provisions might be uneconomical. Most	12	105
importantly, from our perspective, anti-predatory	13	105
lending laws' imposition of liability on purchasers	14	105
or attorneys might reduce the availability of funds	15	105
to pay investors and securities backed by mortgage	16	105
loans governed by a particular loan.	17	105
This would occur if a purchaser or	18	105
assignee were bound to hold the loan that violated	19	105
the law, even if the purchaser or assignee did not	20	105
himself engage in the prohibited practice.	21	105
Therefore, performing a credit analysis of a	22	105
structured financing act as backed by residential	23	105
mortgage loans, we evaluate the impact an	24	105
anti-predatory lending law might have on the	1	106
availability of funds to pay investors in a rated	2	106
security.	3	106
To the extent that Standard and	4	106
Poor's determines that such investors might be	5	106
negatively impacted, we may require additional	6	106
credit support to protect investors, or in certain	7	106
circumstances exclude such loans from our rated	8	106
transactions.	9	106
Given this context and our interest	10	106
in the ongoing dialog regarding predatory lending	11	106
legislation, we appreciation the opportunity to	12	106
discuss our process for evaluating the impact of	13	106
anti-predatory lending laws on many of these	14	106
structured financial transactions.	15	106
In performing our evaluation of	16	106
anti-predatory lending laws we consider, among	17	106
other factors, whether the law provides for	18	106
assigning liability, what the penalties might be,	19	106
whether there are clearly delineated loan	20	106
categories that are covered by the law, and we look	21	106
at the clarity of the statutory violations. And we	22	106
also look at the state laws.	23	106
The first step in our analysis	24	106
whether to write a transaction is to determine	1	107
whether the law covering the loan assigned	2	107
liability. We define assignee liability as	3	107
liability that attaches to the purchaser or	4	107
assignee of a loan, including a securitization	5	107
trust, simply by virtue of holding the loan.	6	107
Typically laws that impose assignee liability	7	107
permit a borrower to assert --	8	107
GOVERNOR OLSON: You're at a very key point, so	9	107
we want to come back to it, but the five minutes	10	107
has expired so we will definitely come back. I	11	107
apologize. But that is a critical point.	12	107
MR. MASON: I prefer questions and answers	13	107
anyway.	14	107
GOVERNOR OLSON: We will definitely be coming	15	107
back to it. You prefer questions for which you can	16	107
provide the answer.	17	107
MR. MASON: Well, of course. Well, anyone who	18	107
can provide an answer is fine.	19	107
GOVERNOR OLSON: Ken Posner.	20	107
MR. POSNER: Now I'm looking nervously at my	21	107
watch.	22	107
Has my time started yet?	23	107
GOVERNOR OLSON: You have used 40 seconds of	24	107
it.	1	108
MR. POSNER: My name is Ken Poser, I'm a	2	108
research analyst at Morgan Stanley and my job is to	3	108
come up with recommendations on stocks for a	4	108
variety of financial service companies, including	5	108
mortgage companies. So I don't have a role in the	6	108
policy process either, but I look at predatory	7	108
lending concerns as a risk factor for the stocks I	8	108
cover, and thus it's an important topic for me to	9	108
understand.	10	108
What I will share with you this	11	108
morning very briefly is a couple of my own personal	12	108
opinions about how these laws could help or hinder	13	108
the development of the mortgage market.	14	108
The first one I'd like to make is in	15	108
terms of thinking about predatory lending, there is	16	108
clearly a valid concern in protecting consumers	17	108
from abuse. The Center for Responsible Lending has	18	108
estimated that consumers suffer some $9 billion in	19	108
lost equity per year from abusive practices.	20	108
However, I'd like to point out that	21	108
the size of the nontraditional market, including	22	108
subprime, payday, and other controversial loans,	23	108
now accounts for almost half of the entire mortgage	24	108
market or some $1 trillion in originations. You	1	109
could clearly eliminate the $9 million in fees by	2	109
outlying all of these loans, but that would have	3	109
devastatingly negative consequences for consumers	4	109
in the market. So my concerns is look at balancing	5	109
concerns over views with measures that might	6	109
curtail or limit the market, which I think would be	7	109
counter-protective.	8	109
The second point I want to make is I	9	109
observe this market, and I think as you all know,	10	109
the capital markets are not heavily involved in	11	109
intermediating or setting the prices on risks for	12	109
mortgage loans. And the process that investors go	13	109
through is very complex. The price on loans has to	14	109
do with, sure, the borrowers FICO score and the	15	109
type of the loan. But it also has to do with	16	109
expectations for the local housing market and the	17	109
interest rates in the broader economic context.	18	109
And all of this stuff changes very quickly, as you	19	109
know, in a real-time market kind of basis.	20	109
So if you come up with a law that	21	109
says, well, an interest rate of X percent is fine	22	109
but an interest rate of Y percent is not fine,	23	109
well, that might be fine, that might be great this	24	109
week. But it might be totally irrelevant and	1	110
inappropriate next week. So I'm very skeptical of	2	110
any kind of law that would seek to demarcate one	3	110
part of the market from the other. The prices and	4	110
the terms change quickly.	5	110
The next point I would make to build	6	110
on that is I would be concerned about laws that	7	110
limit prices or fees or rates or even prepayment	8	110
penalties. And why is that? It's because it's	9	110
been my observation that hurts the market for small	10	110
loans.	11	110
Now, I have the great privilege of	12	110
covering the Payday Lending space, which is	13	110
controversial. But nonetheless, consumers are able	14	110
to get $300 loans for short periods at APRs of 4,	15	110
5, 6, or 700 percent. And this business is legal	16	110
in many states and viewed as a legitimate service	17	110
to consumers. So if you say we are going to limit	18	110
the mortgage market to certain points and fees, I	19	110
hope that you won't have the consequence of pushing	20	110
people into Payday Lending or other markets which	21	110
are even more expensive.	22	110
And think about it this way. Our	23	110
data suggests that the average cost to originate a	24	110
subprime loan is around $3,000 today. So for a	1	111
$300,000 loan, that is only one point, that is not	2	111
a big deal. But for a $30,000 loan, that would be	3	111
ten points. So do you really want to tell the low	4	111
and moderate income people, who would in many cases	5	111
be looking for $30,000 loans, that they just can't	6	111
have them? I think that is the question that has	7	111
to be asked.	8	111
Let me wrap up here. When we look	9	111
around the world at different credit markets, we	10	111
find that consumer education and financial literacy	11	111
goes hand-in-hand with large and vibrant consumer	12	111
credit markets. So it seems to me that one	13	111
strategy that could address abuse without	14	111
curtailing the market would be to focus on things	15	111
like disclosures, counseling, and education.	16	111
Because I think the reason people get abused is	17	111
they don't understand the loan terms, and if people	18	111
were better educated we would expect the market to	19	111
actually be bigger and not smaller. So I don't	20	111
have specific suggestions, but I think that is a	21	111
very fruitful avenue for exploration.	22	111
And if I have 30 seconds left, I will	23	111
just say that covering mortgage stocks over the	24	111
last few years, I've seen companies stumble badly	1	112
over these kinds of issues.	2	112
GOVERNOR OLSON: Finish that sentence.	3	112
MR. POSNER: Names like Household and	4	112
Associates and Providian come to mind. The	5	112
problems at those companies were problems of	6	112
culture and bad controls.	7	112
GOVERNOR OLSON: That's a good stopping point	8	112
right there. We can also come back to it.	9	112
Anthony, again I don't know that I	10	112
said it at the front of end or not, will each of	11	112
you identify yourself and who you represent and we	12	112
will look forward to hearing from you.	13	112
MR. PENNINGTON-CROSS: I'm Anthony	14	112
Pennington-Cross and I'm a research economist at	15	112
the St. Louis Federal Reserve Bank. So, again, I	16	112
consider myself somewhat kind of in the middle and	17	112
I have done a fair amount of research on the	18	112
performance of the subprime loans and some work on	19	112
the impact of these state and local laws on the	20	112
subprime market as a whole.	21	112
So I will just start out by saying a	22	112
concern over predation I think is very	23	112
understandable in this market. I think primarily	24	112
it's from two sources. One is outright fraud, and	1	113
I think we've heard a lot of examples this morning	2	113
of outright fraud. So one question comes to my	3	113
mind is when something is obviously fraud, whether	4	113
the enforcement exists to stop that type of	5	113
lending.	6	113
The other side is that we are talking	7	113
about the high cost of the subprime and the	8	113
nonprime portion of the market. And these loans	9	113
are going to fail at a higher rate regardless, even	10	113
if we threw out the fraud, if we have legitimate	11	113
high cost lending.	12	113
In addition, these loans tend to be	13	113
concentrated geographically. And that's somewhat	14	113
natural, considering that as a society we tend to	15	113
separate ourselves by income strata. We don't mix	16	113
the wealthy with the poor on the same streets too	17	113
well in the United States.	18	113
So we have this high concentration of	19	113
potential defaults and failures in terms of	20	113
homeownership. And if there are externalities of	21	113
these failures, which there certainly are, then	22	113
these costs are being borne by their neighbors and	23	113
these costs are often borne by the local	24	113
municipalities which have to deal with the problems	1	114
associated with abandoned housing on blocks. In	2	114
fact, it can be very expensive if this process	3	114
lingers on for a long time. So there are costs	4	114
outside of those borne by the lender, the borrower,	5	114
and the secondary market.	6	114
So one question is how high a failure	7	114
rate is too high? What can we stomach in this	8	114
country? If we can price almost anything, the	9	114
bankers, the lenders, the originators, we can price	10	114
the mortgage, we can say this is great. Here is	11	114
what you qualify for, it's going to be 25 percent	12	114
interest rate. And we handle pretty well that you	13	114
have a 40 percent chance of making it through and	14	114
successfully gaining homeownership. But how far	15	114
are we willing to go?	16	114
So we need to have a policy debate, a	17	114
more explicit policy debate, about what is too much	18	114
today. What can we stomach.	19	114
So I just want to point out a couple	20	114
numbers, and these are from the Mortgage Bankers	21	114
Association fourth quarter 2005. So loans that are	22	114
90 day past due for a prime was .44 percent in that	23	114
fourth quarter. For subprime, it was almost 3	24	114
percent, so substantially higher. So is that	1	115
number too high? I think for some folks it's too	2	115
high. And I think when we had the advocates over	3	115
here earlier, I think part of the commentary is	4	115
perhaps that number is too high. Then we had	5	115
business on the other side, perhaps that number	6	115
wasn't too high. So I think there is a	7	115
disagreement in the community about what number is	8	115
too high.	9	115
But I also want to point out if we	10	115
look at the delinquency of FHA loans, they are	11	115
actually currently a little higher than the	12	115
subprime loans according to the mortgage bankers.	13	115
In fact, those numbers are almost 3.8 percent for	14	115
90 day loans. So we have to be cognizant of the	15	115
different segments and the different initial	16	115
risks.	17	115
So I think actually in about 2002	18	115
HOEPA was extended and strengthened, because if you	19	115
look at the data of the delinquency and foreclosure	20	115
rates in subprime were extremely high in that time	21	115
period. Around 2001 they were up around 8, 9	22	115
percent. Today it's come back to about 3, so there	23	115
has been a gradual dropping of that. And that is	24	115
when we start seeing a production of state and	1	116
local laws starting in North Carolina.	2	116
So what are these state and local	3	116
laws designed to do? Well, they are HOEPA style,	4	116
mini-HOEPA as you heard before. They define	5	116
coverage, does the law apply, if they apply, then	6	116
there are restrictions on the types of lending you	7	116
can do, typically in terms of balloons and	8	116
prepayments and arbitration.	9	116
Now, in terms of the academic	10	116
research that is out there, everyone found -- and	11	116
there are three folks over here that all wrote	12	116
individual papers, and they all found that the	13	116
first law that came into effect in North Carolina	14	116
did reduce the amount of subprime credit in the	15	116
overall market. Future work, which took advantage	16	116
of the variations of all the laws that were	17	116
introduced after that, I think now today we are up	18	116
to around 26 states have these laws in effect. And	19	116
these laws can be tough in terms of what types of	20	116
loans they restrict, and they can also cover	21	116
different segments of the market. And their impact	22	116
can be positive or negative.	23	116
GOVERNOR OLSON: We'll come back to that. That	24	116
is a great point.	1	117
Keith.	2	117
MR. ERNST: My name is Keith Ernst, I'm senior	3	117
policy counsel with the Center for Responsibility	4	117
Lending. Thank you for the opportunity to testify	5	117
at this important hearing. Thank you also for the	6	117
Federal Reserve's role in keeping homeownership	7	117
protections relevant in the dynamic subprime	8	117
mortgage market.	9	117
Since the last hearing the Fed held	10	117
on HOEPA much has changed. The subprime mortgage	11	117
market has grown dramatically, now counting for one	12	117
out of five mortgages in the country, even as	13	117
reports of predatory lending practices have	14	117
persisted and evolved to encompass new concerns.	15	117
While the Federal Reserve has taken	16	117
steps to help combat predatory lending and ensure	17	117
fair lending practices in the mortgage market,	18	117
state policy makers have also taken action. We	19	117
believe the combined efforts of state and federal	20	117
regulators have done much to combat abusive lending	21	117
practices, but we also believe much remains to be	22	117
done.	23	117
Today I want to talk about state	24	117
predatory lending reforms, their impact on the	1	118
market, and make a few suggestions for how the	2	118
Federal Reserve can further protect homeowners.	3	118
Since the passage of North Carolina's	4	118
predatory lending law in 1999, state policy makers	5	118
around the country have set about curtailing	6	118
predatory lending, particularly in the subprime	7	118
market.	8	118
To make some judgments about the	9	118
effectiveness of these laws, one needs to answer	10	118
two primary questions. And this is important,	11	118
because I think a lot of where the debate misses	12	118
each other is in the formulation of what questions	13	118
we are seeking to answer.	14	118
So the two questions I want to lay on	15	118
the table are, first, are state predatory lending	16	118
laws having their intended effects? Are they	17	118
decreasing the incidents of loans targeted for	18	118
reform by policy makers? I would say that is their	19	118
essential purpose.	20	118
Second, are they avoiding unintended	21	118
consequences? Most commonly researchers have asked	22	118
this question by asking about whether state laws	23	118
have led to a decrease in subprime credit. But I	24	118
want to caution against interpreting any change in	1	119
policy that has unintended consequences.	2	119
In my experience and in my	3	119
organization's experience, while policy makers	4	119
would welcome loans without predatory terms in lieu	5	119
of those targeted for reform, they also recognize	6	119
that it is not always possible to substitute a	7	119
responsible loan for an abusive one.	8	119
The research taken to date as a whole	9	119
shows I believe that state predatory lending laws	10	119
are accomplishing both of these goals. For our	11	119
part, the Center for Responsible Lending issued a	12	119
report in February that analyzed information on	13	119
more than six million subprime mortgages originated	14	119
between 1998 and 2004. Principally, we found that	15	119
states that have implemented significant reforms	16	119
generally reduced the incidents of loan predatory	17	119
terms the greatest.	18	119
Interestingly, other research has	19	119
linked changes in subprime loan buying with	20	119
reductions in push marketing among the least	21	119
regulated mortgage lenders. We also found in our	22	119
study that state laws have produced no significant	23	119
decrease in subprime mortgage originations in 26	24	119
and 28 states.	1	120
Anthony, I hope you will get a chance	2	120
to get back to your research, because I think it	3	120
shows that there is great variations in the	4	120
experience of different state laws.	5	120
Finally, in our studies we found that	6	120
laws that were associated with stronger protections	7	120
were also associated with favorable interest rate	8	120
reductions. Specifically, when we compared states	9	120
with predatory lending laws, prices in states with	10	120
predatory lending laws to prices in states without	11	120
predatory lending laws, we found that 19 states	12	120
experienced a decrease, albeit slight; 8 had no	13	120
statistical difference; and 1 had a slight	14	120
increase. These findings are powerful indications	15	120
that these predatory lending laws can and do filter	16	120
loans of their terms while allowing subprime credit	17	120
to flow.	18	120
We'd like to lay five general	19	120
recommendations on table for the Fed to consider.	20	120
First, include prepayment penalties	21	120
in the HOEPA definition of points and fees.	22	120
Second, make fuller use of FTC Act	23	120
violation to tackle specific abuses.	24	120
Third, make further use of HMDA	1	121
authority to provide additional critical	2	121
information.	3	121
Fourth, in the context of fair	4	121
lending examinations, urge regulators to focus on	5	121
discretionary posting.	6	121
And finally, we think the Federal	7	121
Reserve should exercise leadership in this area by	8	121
encouraging Congress to adopt a suitability	9	121
standard to ensure that increasingly complex	10	121
mortgage products are suitable for borrowers	11	121
needs.	12	121
In the interest of time, we elaborate	13	121
on these recommendations in the subsequent future	14	121
remarks. Thank you.	15	121
GOVERNOR OLSON: Roberto Quercia.	16	121
MR. QUERCIA: Thank you. Good morning. I'm	17	121
Roberto Quercia from the University of North	18	121
Carolina at Chapel Hill. Thank you for inviting me	19	121
to testify in this hearing.	20	121
Equity based lending is a rapidly evolving	21	121
area in housing finance, and in my view, because of	22	121
this, it has the potential for abuse. I believe	23	121
the state anti-predatory lending laws, such as the	24	121
one in North Carolina, strengthens consumer	1	122
protection by prohibiting some lending practices	2	122
while still allowing for the growth of the subprime	3	122
industry.	4	122
For example, the North Carolina law	5	122
bans prepayment penalties for small loans, the	6	122
financing of up-front single premium insurance, and	7	122
creates a new section dealing with high cost home	8	122
loans with additional restrictions. Despite fears	9	122
to the contrary, our study found that the law does	10	122
not curtail the availability or cost of legitimate	11	122
credit. Thus, it allows the industry to continue	12	122
to grow.	13	122
Our study asked the essential question	14	122
that other studies failed to ask: was the overall	15	122
decline in subprime lending reported by others due	16	122
to a decline in loans with legitimate terms, or to	17	122
a reduction in loans with abusive terms?	18	122
Our study reveals that although the	19	122
total volume of subprime originations in North	20	122
Carolina declined, the number of home purchase	21	122
loans was unaffected by the law. And while	22	122
refinance originations did fall, we estimated that	23	122
about 90 percent of the decline was in subprime	24	122
loans with predatory features as defined by the	1	123
law, which is what the law intended.	2	123
For example, refinance loans	3	123
containing prepayment penalties of three years or	4	123
more dropped 72 percent after the law's passage,	5	123
while rising in neighboring state by as much as 260	6	123
percent. We also found that the total volume of	7	123
loans to North Carolina borrowers with credit	8	123
scores below 660, the core of the subprime market,	9	123
rose in the post-law period by a similar or greater	10	123
percentage than it did in several neighboring	11	123
states.	12	123
We understand that the mix of loans	13	123
and lenders included in any analysis can affect	14	123
results. This is why we have examined changes in	15	123
specific loan features and disclosed the	16	123
composition of our study database. We are open to	17	123
having our analysis carefully reviewed,	18	123
scrutinized, and replicated. We believe that	19	123
others should do the same.	20	123
In closing, I would like to say a few	21	123
words about the future. Housing equity is part of	22	123
a household portfolio and has always been. In the	23	123
past homeowners have had limited options to tap the	24	123
equity in their homes to complement their family	1	124
budgets.	2	124
In contrast, today homeowners have	3	124
many options available: home equity loans,	4	124
traditional lines of credit, credit cards backed by	5	124
the equity in the home, and others. These options	6	124
provide opportunities to homeowners, but can also	7	124
raise many challenges. The risk of home loss due	8	124
to a lack of understanding of complex financial	9	124
mechanisms or due to deceptive or abusive practices	10	124
requires, in my view, the government play a strong	11	124
role.	12	124
In my view HOEPA addresses the issue of	13	124
equity based lending from the traditional view of	14	124
housing finance without consideration to broader	15	124
consumer credit issues. Because of this lack of	16	124
consideration, I believe that HOEPA is	17	124
inappropriate to oversee the industry in a way that	18	124
allows it to grow, while at the same time provide	19	124
enough protection to homeowners. HOEPA needs to	20	124
take into account the increasing intersection of	21	124
the consumer and housing credit sectors. Thank	22	124
you.	23	124
GOVERNOR OLSON: We are on a roll.	24	124
Michael.	1	125
MR. STATEN: I'm Mike Staten at the School of	2	125
Business at the Georgetown University. Those of	3	125
you who are familiar with me and some of the	4	125
studies of the North Carolina law, which is all we	5	125
had to look at four years ago when these studies	6	125
started coming out, won't be surprised to hear me	7	125
say something different than what you heard the	8	125
first two researchers comment.	9	125
I think there is no question that the	10	125
way you pass a law and the provisions you put into	11	125
it can have an impact on the kind of loans and	12	125
volume of loans and the composition of borrowers to	13	125
get those loans across the states. Unlike four	14	125
years ago when we first started doing those	15	125
studies, though, now we have this marvelous natural	16	125
laboratory that those other 26 states provide us	17	125
around the country. And most of them with enough	18	125
experience that we can look and see what happened	19	125
in those states who adopted a little different	20	125
law.	21	125
Our recent study, which I may or may	22	125
not have time to get into here, finds, like	23	125
Anthony's study does, that not all the laws are the	24	125

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

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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