Gramlich Explains Fed HOEPA Move

In tightening up its Home Ownership and Equity Protection Act regulations, the Federal Reserve Board thought it could address some abuses in the subprime lending market without stifling growth, according to Fed Governor Edward Gramlich. Since the passage of HOEPA in 1994, the growth of the HOEPA-regulated section of the subprime mortgage market has been the same as in the rest of the subprime market, Mr. Gramlich told an American Enterprise Institute seminar on subprime lending. "So HOEPA is not impeding growth too much," he said. The new rules that went into effect Oct. 1 are expected to increase HOEPA coverage from 9% of all subprime loans to 26%, according to Fed estimates. However, Georgetown University researcher Michael Staten said the new rules could extend HOEPA coverage to 42% of subprime loans, based on his review of 2.3 million subprime loans originated from 1995 to mid-year 2000. ?We don?t know how lenders will react to the new HOEPA coverage,? Mr. Staten said at the AEI seminar.