Fed meets housing activists amid loan oversight criticism
Faced with a barrage of criticism for weak oversight of the mortgage industry, Federal Reserve officials Wednesday took the unusual step of opening their doors to activists who have protested home foreclosures around the country.
For close to an hour, three dozen members of ACORN -- the Assn. of Community Organizations for Reform Now -- met with Fed Chairman Ben S. Bernanke and Fed Gov. Randall Kroszner in the same conference room where board members set the course of interest rates and debate the health of the U.S. economy.
Although nothing was settled, the meeting reflected the Fed’s desire to show heightened concern about lending practices that many blame for the rising tide of defaults and foreclosures. Members of Congress and consumer advocates have been urging the Fed to take a more assertive role in overseeing lenders.
“It’s very politically savvy on the part of the Fed” to hold such a meeting, said Howard Glaser, a mortgage industry analyst and former U.S. housing official. “Whether it translates into action remains to be seen.”
The Fed is already scrutinizing issues including prepayment penalties, which can make it costly for borrowers to refinance. The Fed is also examining whether lenders are doing enough to ensure that borrowers can fulfill their payment obligations.
It held a hearing on such matters last week and is accepting comments from the public until Aug. 15. Officials could propose stricter standards sometime after that.
Activists said Bernanke and Kroszner listened carefully to their views, without revealing their plans.
“They didn’t give us any direct answers on what they were going to do. But they did say they would consider what we were talking about,” said Fannie Brown, an ACORN board member from Oakland.
The meeting occurred as the Fed considers whether to be a stricter cop in the mortgage business. Some experts believe that the Home Ownership and Equity Protection Act gives the Feb broad powers to enforce fair practices by all lenders -- not just the banks and savings and loans that regulators have traditionally overseen. Independent lenders and brokers have become important players in the mortgage industry and sold many of the high-cost mortgages that are now failing.
“Use it or lose it,” Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, lectured Kroszner at a hearing last week, referring to the Fed’s power to supervise fairness in lending. “If the Fed doesn’t start to use that authority to roll out the rules, then we’ll give it to somebody who will.”
Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, also weighed in with a statement Wednesday. Foreclosure problems, he declared, “underscore the importance of prompt and aggressive rulemaking by the Federal Reserve Board to prohibit the abusive and predatory practices that have contributed to this troubling trend.”
Rising failures in high-cost sub-prime loans have damaged lenders and placed many borrowers in danger of losing their homes, particularly when interest rates on such loans jump. According to the Center for Responsible Lending, more than 2 million U.S. households are at risk of foreclosure.
Still, Fed officials remain wary of cracking down, cautioning that their actions could cause lenders to withhold credit from worthy borrowers. “In deciding, we must walk a fine line,” Bernanke declared in a speech this month.
After Wednesday’s meeting, one participant said he still hoped that the Fed would come up with strict new standards to rein in lending abuses.
“We’re hopeful that they’ll issue regulations about these practices, that they’ll do more than advocate for better disclosures and education,” said Jordan Ash, director of the ACORN Financial Justice Center in St. Paul, Minn.
According to Ash, Bernanke suggested Wednesday that the Fed could choose to move in various ways, including call for better disclosures to borrowers, suggest guidelines for lenders or introduce a formal rule.
A Fed spokeswoman declined to comment on the meeting, which was private.
ACORN is a nationwide nonprofit organization that provides a range of community services. It offers mortgage counseling, organizes classes for first-time home buyers and helps clients obtain affordable mortgages.
This month, ACORN sponsored rallies in more than a dozen American cities to focus attention on the foreclosure problem, which activists blame largely on unfair lending practices and insufficient oversight. The organization also is politically active.
Soon after the demonstrations, Bernanke issued an invitation to the Wednesday meeting.
On her way to the airport, Brown, the Oakland activist, recalled entering Federal Reserve headquarters and the boardroom, appointed with a fireplace, two walls of golden silk and a huge chandelier over the table.
“It made me feel good to be inside,” said the retired contractor and day-care provider. “It was an experience. I can tell that to my six adopted children.”