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Lobbying Sheet: Predatory Lending

May 1, 2002

by Rob Blumel, Grassroots Manager

ATLA believes that predatory lending is a serious problem that is being addressed in the regulatory arena at the Federal level. ALTA is also concerned that Congress maintain the current exclusion of title fees from the high cost loan test or predatory lending loan test in any legislation dealing with predatory lending.

The Home Owners Equity Protection Act (HOEPA) is the current Federal Statute which deals with predatory loans. The HOEPA amendments to the Truth in Lending Act (TILA) define a high cost loan subject to the HOPEA requirements to include loans where "the total points and fees payable by the consumer at or before closing will exceed the greater of (i) 8 percent of the total loan amount; or (ii) $400." (This $400 threshold is adjusted annually by the Board based on the Consumer Price Index). In determining what constitutes "points or fees" for purposes of this provision, the current law provides that points and fees shall include "[f]ees or premiums for title examination, title insurance, or similar purposes."

However, such fees shall be excluded if:

  • the charge is reasonable;
  • the creditor receives no direct or indirect compensation; and
  • the charge is paid to a third party unaffiliated with the creditor.

In other words, reasonable charges by independent title entities who are not affiliated with the lender, and where the lender does not receive direct or indirect compensation in connection with the charge, are not counted toward the 8%/$400 "points and fees" threshold that can turn a mortgage loan into a HOEPA-covered loan. On the other hand, if the provider of title services is affiliated with the lender, or if the lender receives direct or indirect compensation in connection with the charge, or the provider?s charges are unreasonable, the amount of the title-related charges is counted toward the 8%/$400 threshold.

The Federal Reserve Board has considered and rejected recommending a statutory amendment that would replace the current provision with an approach that would include all closing costs in the "points and fees" trigger. ALTA believes that this current approach of HOEPA is reasonable, that the Federal Reserve Board action was appropriate, and that Congress should uphold the current exclusion.

For further information contact Rob Blumel, ALTA Grassroots Manager at 202-296-3671.



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