While there is no universally accepted definition, the term "predatory lending" is used to characterize a range of practices, including deception, fraud, or manipulation, that a mortgage broker or lender may use to make a loan with terms that are disadvantageous to the borrower. No comprehensive data are available on the extent of these practices, but they appear most likely to occur among subprime mortgages--those made to borrowers with impaired credit or limited incomes. GAO was asked to examine actions taken by federal agencies and states to combat predatory lending; the roles played by the secondary market and by consumer education, mortgage counseling, and loan disclosure requirements; and the impact of predatory lending on the elderly.
Matter for Congressional Consideration
|To enable greater oversight of and potentially deter predatory lending from occurring at certain nonbank lenders, Congress may wish to consider making appropriate statutory changes to grant the Board of Governors of the Federal Reserve System the authority to routinely monitor and, as necessary, examine the nonbank mortgage lending subsidiaries of financial and bank holding companies for compliance with federal consumer protection laws applicable to predatory lending practices.||While Congress has not taken specific legislative action, the Federal Reserve Board is currently taking action consistent with the thrust of our Matter for Congressional Consideration. At the time of this engagement, the Federal Reserve Board indicated that it lacked clear authority to routinely monitor and examine, as necessary, the nonbank mortgage lending subsidiaries of financial and bank holding companies for compliance with federal consumer protection laws applicable to predatory lending. Congress has held a number of hearings on subprime and predatory lending in which members of Congress and others urged the Federal Reserve Board to take full advantage of its existing authority to examine subprime and suspected predatory lenders. In response to these concerns, the Federal Reserve Board announced on July 17, 2007, that it was undertaking a pilot project with two other federal agencies (Office of Thrift Supervision and Federal Trace Commission), and two associations of state regulators to conduct targeted consumer-protection compliance reviews of selected non-depository lenders with significant subprime mortgage operations. The collaborative state/federal pilot is scheduled to begin in the fourth quarter of 2007 and will focus on non-depository subsidiaries of bank and thrift holding companies, as well as mortgage brokers doing business with or working for these entities. The agencies will evaluate the companies' underwriting standards, as well as senior management oversight of the risk-management practices used for ensuring compliance with state and federal consumer protection regulations and laws, including the Home Mortgage Disclosure Act, Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Federal Trade Commission Act, and Home Ownership and Equity Protection Act.|
|Congress may wish to consider giving the Board specific authority to initiate enforcement actions under those laws against these nonbank mortgage lending subsidiaries.||As of July 2008, Congress has not taken action to provide the Federal Reserve Board with specific authority to initiate enforcement actions for compliance with federal consumer protection laws applicable to predatory lending.|