Home Ownership
Building Sustainable Homeownership:Responsible Lending and Informed Consumer Choice
"The Board will hold public hearings as required by the Home Ownership and Equity Protection Act (HOEPA) to examine the home equity lending market, and to assess the effectiveness of existing regulatory and legislative provisions (including HOEPA) in protecting the interests of consumers"
Federal Reserve Bank of San Francisco 101 Market Street, San Francisco, California 94105 June 16, 2006
The Transcript:
REPORTED BY: LAURA A. REDING, CSR NO. 9711
Friday, June 16, 2006, 8:45 a.m.
MR. OLSON: Good morning. I'm Mark Olson, Federal Reserve Board of Governors. We are delighted this is the third in a series of hearings that we have had on HOEPA. It's a repeat of a series of hearings that were held about six years ago that led to at that point implementation of the HOEPA regs and others.
Let me -- let me first of all just outline the day and what the expectations are. We have three panels. Heavy focus on nontraditional products in the mortgage area. By design, we have -- we use the San Francisco, essentially the west coast, hearing to focus on that.
Much of the rest of the country seems to think that the nontraditional products are relatively new. As we will hear today, they're not new products on the west coast, and so your experience here is -- I think will be very valuable for our overall understanding of the -- of the role of the new products in the marketplace, both the positives and some of the issues that are created.
The first panel will go until 10:30. We will then take a break and have the second panel that will go until 12:30. And then break for lunch and then an afternoon panel.
Very importantly, at about 3:00, hopefully precisely 3:00, we will have what we call an open mic time. And that's -- at that time it will be an opportunity for anybody who would like to speak to speak.And if you would -- if you would care to avail yourself of that opportunity, there will be a sign-up sheet. And that sign-up sheet, it will be -- where will they find the sign-up?
MS. REID: Outside right now but --
MR. OLSON: Just out the door right here. So make sure you've signed up sometime between now and then if you would care to avail yourself. For the panelists, there will be a -- each of you will be asked if you could summarize your comments in five minutes. We enforce it.
MS. REID: I'm your timekeeper. I'll hold up this "one minute left."
MR. OLSON: And what we've discovered -- we didn't discover it. It's been coming up. So much of the value of these hearings comes out of the dialogue, in the discussion. So I think -- and then we will -- a summary for five minutes and then we will move on from there.
Just to introduce my fellow panelists, Leonard Chanin, Sandy Braunstein, my colleagues from Washington, D.C., and Jack Richards from the San Francisco Fed.
There are three areas of focus for these hearings. Number one has been, of course, the impact of predatory lending and the effectiveness of the HOEPA regs. Second has been a look at this new phenomenon called the nontraditional mortgage products.
And that -- in the intervening six years, some very remarkable things have happened in the marketplace. And what has happened essentially is that we have seen through a combination of technology and secondary market appetite and a highly liquid market, there is a -- whereas the secondary market had for many years focused primarily on the conforming product, the Fannie and Freddie conforming product, the fact that that secondary market now has an appetite for the nontraditional product has had a number of implications, both good -- largely good frankly because of the -- because it has provided a liquid source for more mortgage product, there are more people who have access to mortgage money than ever before, and a wider variety of a range of products.
The difficulty comes because of the fact that sometimes there are products where we -- that we clearly have recognized, where people are put into products that they probably shouldn't be, either -- for whatever reason. And that's part of what we are -- we're going to probe today. The extent to which those products are, in fact -- how they're marketed, how they're used, and the experience that we've had with them.
It is hoped -- the expectation is that there will be four objectives or four goals that will come out of these hearings: Number one, an evaluation of the effectiveness of the HOEPA regs; number two, there is -- we will be at some point looking to review a Reg Z, and some of the input from here will be factored into that review.
Point number three, we at the Federal Reserve think it's part of our responsibility to focus on consumer literacy and financial education. That -- and what we are learning in these processes will help us provide direction for that effort.
And number four, that is also a responsibility of the Fed -- one of the responsibilities that we assume for ourselves is to look for opportunities for further research.
And so those are the four that will hopefully come from here.
In an environment like this, the appropriate use of financial products is a shared responsibility. Certainly the primary responsibility is for the consumer.
A consumer in a free society, in a free market, there's an underlying fundamental presumption that the consumer is responsible for his or her choices and actions. However, it is a shared responsibility, and the second part of that sharing is with the originator, the initiator of those mortgage products.
There is no question of what -- there's an extraordinary knowledge asymmetry, between the knowledge that an individual will have when they are taking, especially sometimes for the first time, a mortgage product and to try to evaluate them in the context of a wide range of products that are available.
I have said before -- and let me say it again because it brings it home. Some of you know my background is banking. I spent 16 years in the banking industry. I never was primarily a mortgage lender, but during those 16 years, I was involved in the closing of a lot of -- of a large number -- I'm thinking it's roughly a hundred -- mortgage loans that I was involved in the closing of.
And yet every time I went to a closing of my own loan, I felt somewhat at a disadvantage in terms of my understanding. So I can imagine what somebody that is approaching that experience for the first time must feel.
So there is that clear shared responsibility, the consumer and the lender.
There is a third group that broadly defined that has -- we are learning more all the time can make a real impact, and that's the community and consumer groups. Financial institutions, not intentionally but by their nature, I think do not get real close to the broad community, especially the low-mod and sometimes the minority communities.
The financial institutions don't have that immediate connection that some of the consumer groups do. And we found the consumer groups that have that access, that have that credibility can bring an education, can bring an understanding, but can also bring to the marketplace -- can help focus what some of those important issues are. And we've heard from some of those groups and we will continue to hear from some of those groups.
June 7, 2006 --Federal Reserve Bank of Chicago
June 9, 2006--Federal Reserve Bank of Philadelphia
June 16, 2006--Federal Reserve Bank of San Francisco
July 11, 2006--Federal Reserve Bank of Atlanta