It isn't often that the National Association of Realtors (NAR) seeks an expansion of federal regulatory powers and activities, but when it comes to predatory lending, an exception to the rule prevails.

At the recent NAR mid-year meetings in Washington, D.C., NAR directors approved recommendations of the Conventional Finance and Lending Committee regarding the subject of predatory lending. Based on a report of its Subprime Lending Working Group, the committee recommended a three-part program be adopted by NAR. The first two parts dealt with public awareness and the role that Realtors could play, working with community and government programs, in helping unsophisticated consumers to become more financially literate. The third part of the program was that NAR should support stronger anti-predatory lending legislation and regulation.

Predatory lending lacks an exact, standard definition. According to a 2004 General Accounting Office (GAO) report, it is "an umbrella term that is generally used to describe cases in which a broker or originating lender takes unfair advantage of a borrower, often through deception, fraud, or manipulation, to make a loan that contains terms that are disadvantageous to the borrower."

The report goes on to enumerate some features commonly associated with cases of predatory lending: excessive fees, excessive interest rates, lending without regard to ability to repay, repeated refinancing without any significant gain for the borrower, fraud and deception, prepayment penalties that are used to trap borrowers in high-cost loans, and balloon payments that a borrower is unlikely to be able to afford.

Many of the practices associated with predatory lending are not illegal or abusive per se, but they may be in the context of the particular loan and the borrower. Predatory lending is often associated with refinancing and home equity loans. The name comes from the fact that abusive lenders prey upon particularly vulnerable groups such as the elderly or poor minorities, often those who lack a good command of English.

There is only one federal law specifically directed against predatory lending. That is the Home Ownership and Equity Protection Act of 1994 (HOEPA), which was enacted as an amendment to the Truth in Lending Act. There are other regulations, such as the Real Estate Settlement and Procedures Act (RESPA), which prohibits some practices that are associated with predatory lending. Moreover, many states have their own laws directed against predatory lending. California's are found in sections 4970 - 4979.8 of the financial code.

HOEPA covers refinancing loans and home equity loans whose interest rates exceed current Treasury securities by at least 10 percent, in the case of "junior" mortgages, and at least 8 percent in the case of first mortgages. It also cover refinances and home equity loans with points and fees exceeding 8 percent of the loan amount. HOEPA does not cover purchase money loans.

The NAR proposals recommend the expansion of HOEPA to cover purchase money mortgages. They also recommend lowering the "triggers" so that HOEPA would apply to more mortgages. While not naming specific numbers, NAR is recommending that interest rates lower than the current standard should be covered by HOEPA. It also is recommending a broader definition of "points and fees," and suggests that the maximum be lowered to 5 percent of the loan amount. It also recommends that prepayment penalties be barred for all mortgages, not just HOEPA covered loans; and, if that is not possible, suggests that the maximum permissible time for prepayment penalties to be in effect be lowered from five years to three.

While nobody should be construed as taking a position for predatory lending, it should be acknowledged that there were, and are, some dissenting voices regarding these proposals. Of particular concern was the recommendation to extend HOEPA to purchase money mortgages. California Realtors in particular are sensitive to the fact that one of the factors that has fueled its continued hot real estate market is the availability of some, let us say, exotic loan products. Many of these contain features, such as extremely high loan-to-value ratios, that might get caught up in an expansion of HOEPA. Restricting the availability of such loans could conceivably have the effect of sticking a pin in the bubble.