Fed, in Eyeing 2/28 Guidance, Sees Concern

The Federal Reserve Board is looking at incorporating proposed underwriting guidance on adjustable-rate 2/28 mortgages into its anti-predatory lending regulations, but it could open the door to private lawsuits against lenders and investors, a Fed staffer told a House panel."We are going to be looking at this authority," Federal Reserve director Sandra Braunstein told a House Financial Services subcommittee. Senate Banking Committee chairman Chris Dodd, D-Conn., is urging the Fed to use its authority under the Home Ownership and Equity Protection Act to require all lenders to underwrite subprime loans at the fully indexed rate. But the Fed has to be very careful in writing such a regulation, she warned, because HOEPA allows borrowers to file private lawsuits against lenders, as well as investors, under its assignee liability provision. "Anybody that touches the loan could be potentially sued," she warned. To avoid a credit crunch, the Fed will have to draft a regulation that creates a "clear bright line" so that lenders will continue to make "responsible loans," the Fed's director of consumer and community affairs said.