WASHINGTON-During a recent speech to the Consumer Bankers of America (CBA), Treasury Deputy Assistant Secretary for Financial Institutions and GSE Policy J. Patrick Cave told the group that "hopefully a significant number of institutions" would agree to adopt a voluntary code of conduct to prevent predatory lending practices. The Treasury is currently considering whether the Federal government should play a role in developing these guidelines. Cave provided ideas as to what would be included in the best practices. Limiting prepayment penalties, limiting or prohibiting balloon terms, and prohibiting the sale and financing of single premium life insurance could be included. However, he noted that it is important not to encumber the secondary mortgage market, which has provided financing to many who otherwise would not have received it. Special attention should be paid to the mortgage brokers, according to Cave. He said that the majority of brokers are honest but that abusive practices are sometimes linked to the broker. "State law enforcement and regulatory agencies need to be vigilant in monitoring mortgage brokers, and enforcing existing laws and consideration of new requirements may be necessary to ensure that a few irresponsible brokers do not damage the positive role played by mortgage brokers," he said. "However, all responsibility for monitoring mortgage brokers cannot rest only with state enforcement and regulatory agencies. Lenders should also carefully monitor the performance of mortgage brokers that they do business with to ensure that those brokers are following prescribed lending guidelines and not engaging in abusive lending practices." Cave also pointed out that the Federal government has been making efforts to curb predatory lending including improving Department of Housing and Urban Development disclosures-particularly regarding yield spread premiums-and expanding Federal Reserve Board regulations under the Home Ownership and Equity Protection Act and the Home Mortgage Disclosure Act to cover more borrowers. Tougher enforcement of current laws and regulations will also be key in the battle against predatory lending practices, he said. -

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