August 7, 2006

Regulations Division,
Office of General Counsel
Department of Housing and Urban Development
451 Seventh Street, SW.
Room 10276
Washington, DC 20410–0500

RE: Federal National Mortgage Association (Fannie Mae) and the Federal Home
       Loan Mortgage Corporation (Freddie Mac);
       Regulatory Amendments To Strengthen Prevention of Predatory Lending Practices
       [Docket No. FR–5014–P–01]
       RIN 2501–AD17

Dear Sir or Madam:

America’s Community Bankers¹ appreciates this opportunity to comment on the Department of Housing and Urban Development’s (“HUD”) proposal² to change its regulations governing Fannie Mae and Freddie Mac (collectively, the government sponsored enterprises or GSEs) for the purpose of reinforcing “the efforts of HUD and the GSEs to prevent predatory lending practices.”

ACB Position

ACB appreciates HUD’s desire to curtail predatory lending practices. ACB is also firmly committed to protecting consumers from unscrupulous lending practices and ensuring that all consumers have fair and equitable access to credit. Further, our members strive to meet the housing needs in their communities and to provide additional homeownership opportunities for low-to moderate-income households. However, we believe that HUD’s proposal is unnecessary and could have unanticipated negative implications for consumers and for the primary mortgage market in this country, as well as for the GSEs. We oppose the proposal for the reasons described below.

The Rule is Unnecessary

ACB does not believe that government regulations should be promulgated without a compelling need to add or amend a regulatory provision. We are not aware of any need for HUD’s proposed rule at this time. We have no reason to believe that the GSEs are buying or intend to buy loans that disadvantage consumers or to use such loans for goals credit.

The proposed rule would enable HUD, using a “fast track” notice and comment process, to amend the definitions of “mortgages with unacceptable terms and conditions or resulting from unacceptable practices” and “mortgages contrary to good lending practices” that are codified in 24 CFR 81.2 (Definitions). Under the existing statute, mortgages that fall under these two definitions are already ineligible for goals credit for the GSEs.

ACB believes that it would be inappropriate to amend these definitions without some type of verifiable evidence that consumers are disadvantaged by a lending practice in question that henceforth would be deemed “contrary to good lending practices” or as “unacceptable terms and conditions.” We believe that the current statutory definitions are sufficient to protect consumers’ interests.

The “fast track” approach that HUD proposes would allow HUD to circumvent the full rulemaking process under the Administrative Procedures Act (APA). We believe that accelerating the process for changing or broadening the definitions in this manner could preclude the GSEs from purchasing certain types of loans that may be inaccurately labeled as “predatory.” Similarly, this “fast track” procedure could have the unintended consequence of stigmatizing legitimate loan terms. Therefore, we do not believe HUD should have the authority to change the definitions through a fast-track notice and comment period and the current regulatory definitions should be maintained.

Limiting Availability of Credit

Further, HUD’s proposal could have an impact on the availability of credit in the primary mortgage market by effectively redefining “predatory lending.” Any new definitions imposed by HUD could dictate the types of affordable housing loans that lenders would originate in order to maintain the option of selling the loans to the GSEs.

All federally regulated financial institutions, as well as the GSEs, are bound by law and regulation to provide affordable housing credit to low-and moderate-income homebuyers. Banks also provide affordable homeownership opportunities to meet Community Reinvestment Act (CRA) requirements. The GSEs are subject to affordable housing goals and subgoals, which have been increased in recent years.

For these reasons, federal and state banking agencies, as well as the Federal Trade Commission and other state and local enforcement agencies already mandate a plethora of requirements to protect consumers from unscrupulous lending practices. Banks are also subject to CRA fair lending regulations and federal banking agencies deny CRA credit for loans that violate federal law. HUD’s proposal could inadvertently thwart the goal of expanded affordable lending by imposing definitions of predatory lending that are inconsistent with existing regulations and legislation.

The introduction by HUD of additional duplicative or conflicting definitions of predatory lending would make it more difficult to fulfill the collaborative effort between lenders and the GSEs to meet their CRA requirements and affordable housing goals, respectively. Broader definitions by HUD of unacceptable mortgages likely would create situations whereby a mortgage may be eligible for CRA credit and acceptable to banking regulators, but still not be eligible for GSE affordable housing credit.

We believe that the proposal could have the indirect consequence of reducing available mortgage credit by imposing definitions of predatory lending that conflict with existing laws and regulations or by broadening the definition beyond that which is prudent. In turn, this would hinder the ability of the GSEs to buy lawful mortgages to meet their affordable housing goals. In addition, with this rulemaking HUD would be directly effecting the primary market, which is outside of its purview.

Homebuyers benefit greatly from the current mortgage market environment, which offers a wide variety of products and terms to fit their specific circumstances. While some unscrupulous lenders take advantage of unsophisticated borrowers, we believe that alternative and new types of mortgages and mortgage terms extend homeownership opportunities to a greater number of lower income consumers. To avoid curtailing credit, it is essential to recognize the important differences between legitimate loan product terms and predatory lending practices. Terms that might be considered predatory in one context may be advantageous to a homebuyer in another.³

Conclusion

We believe the proposal would have significant negative consequences that could disrupt the efficient national marketplace for real estate credit. For the reasons described above, we request that HUD consider withdrawing the proposal.

ACB appreciates the opportunity to comment on this important matter. If you have any questions, please contact the undersigned at 202-857-3129 or by email at [email protected].

Sincerely,

Janet Frank
Director, Mortgage Finance

¹America’s Community Bankers is the national trade association committed to shaping the future of banking by being the innovative industry leader strengthening the competitive position of community banks. To learn more about ACB, visit www.AmericasCommunityBankers.com
²71 FR 33144 (July 7, 2006)
³An example of this would be the provision in a mortgage document that calls for a prepayment fee. Prepayment “penalties” can be used in an unlawful manner that constitutes a predatory practice, but they also can have a legitimate, beneficial purpose for mortgage borrowers, including low-income borrowers. Such a lawful prepayment charge typically lowers the mortgage interest rate and the monthly payment, which may allow a borrower to be able to afford a mortgage that he or she could not otherwise afford.