WASHINGTON -- Comptroller of the Currency John D. Hawke, Jr.
said today that many well-intentioned efforts to combat predatory lending may
be having the unintended result of impeding the flow of credit to creditworthy
subprime borrowers.
In the first 18 months following passage of a predatory
lending law in North Carolina, he said, it appears that mortgage loan
originations to mainstream subprime borrowers dropped 30 percent. By contrast, the same kinds of loans in
neighboring states dropped by only 3 percent in the same period.
Its no mystery why so many fewer subprime loans are being
made or will be made in
jurisdictions subject to anti-predatory statutes, Mr. Hawke said.
Studies point to increased compliance costs, especially for banks operating in
multiple jurisdictions, increased underwriting expenses, and legal liability
issues that have persuaded subprime lenders to curtail that business or take it
to places where no such laws exist.
In addition, he noted that, In Georgia, New York, and New
Jersey, for example, where particularly stringent anti-predatory laws are in
effect, both Fannie Mae and Freddie Mac have drastically reduced or even
eliminated altogether their purchase of so-called high cost and other real
estate loans.
Moreover, he added, the rating agencies have all adopted
policies that make it very difficult to pool loans originating in Georgia, New
York, or New Jersey unless the issuer provides costly credit enhancements
and/or certifications that the pool contains no proscribed loans.
Mr. Hawke said state laws have generally failed because they
take an across-the-board, one-size-fits-all approach that punishes the good as
well as the wrongdoers.
There is widespread recognition including affirmations by
almost all state Attorneys General that federally regulated financial
institutions and their subsidiaries are not part of the problem. Yet most of
these laws include such institutions, including those chartered under federal
law, within their scope.
Mr. Hawke said a far more effective approach would be to
focus on the abusive practitioners and let federal regulators bring to bear
their formidable enforcement powers where they find abusive practices among the
institutions they supervise.
The Comptroller said the OCC has put out the most
comprehensive guidance produced by any of the federal banking agencies and
probably by any banking regulator describing the kinds of abusive practices
that will result in action by the OCC.
In the past, we havent hesitated to use our enforcement
authority to combat unsafe, unsound, unfair, or deceptive practices, Mr. Hawke
said. Indeed, OCC enforcement actions have resulted in restitution totaling
hundreds of millions of dollars to consumers. And we have served notice that we
will continue to do so in the area of predatory lending.
In addition to taking action against lenders that engage in
unfair or deceptive marketing practices, the OCC has told banks that it is
impermissible to make loans that cannot be repaid without recourse to the
collateral especially if that collateral is the borrowers home.
The Comptroller noted that it is widely acknowledged that
predatory lending is a problem that exists almost exclusively outside the
banking industry among mortgage bankers or finance companies. Indeed, a
recent court brief filed by a coalition of nearly two dozen state Attorneys
General stressed that they had not found predatory lending practices at banks
or bank subsidiaries.
From this perspective, then, I think it can be understood
why we believe that national bank preemption of the Georgia Fair Lending Act
should not be viewed with alarm, he said, alluding to the possibility that
Georgias anti-predatory lending law might be found to be inapplicable to national
banks.
George customers of national banks and their subsidiaries
will enjoy the substantial protections afforded by the OCCs supervisory
process, Mr. Hawke said.
Our approach not
only protects consumers where abusive practices are found, it also avoids the
overbroad and unintended adverse effects of those one-size-fits-all laws
effects that, as weve seen, can be almost as harmful as the problem those laws
were designed to address, he added.
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The OCC charters, regulates
and examines approximately 2,100 national banks and 52 federal branches of
foreign banks in the U.S., accounting for more than 55 percent of the
nations banking assets. Its mission is to ensure a safe and sound and
competitive national banking system that supports the citizens, communities
and economy of the United States.
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