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WASHINGTON, D.C. — America’s Community Bankers has pledged to work with federal banking regulators to eliminate predatory lending practices, while cautioning against the adoption of regulations that would stigmatize legitimate subprime loan terms.

"ACB believes that abusive practices — falsifying documents, hiding or obscuring disclosures, orally contradicting disclosures — are the essence of predatory lending," ACB said in its comment letter to the Office of Thrift Supervision, whose advance notice of proposed rulemaking seeks solutions to the problem of predatory lending. "The proper remedy for these abuses is to ensure that loan originators do not violate laws against fraud and properly disclose loan terms," ACB said.

ACB made the following major points:

■ Policymakers should avoid imposing over-inclusive regulations that would unfairly label legitimate loans as predatory or stigmatize legitimate loan terms.

■ The Federal Reserve Board, rather than OTS, is the appropriate agency to define additional loans as high-cost, since a Fed regulation would apply to all lenders under the Home Ownership and Equity Protection Act.

■ It is essential that federal and state regulators rigorously enforce new and existing rules against all mortgage lenders, including those that are now not as heavily supervised as banking institutions. ACB acknowledged the strong role OTS has under the Parity Act, which permits state-chartered or -licensed housing lenders to follow OTS rules rather than state law in originating some mortgages.

■ Policymakers should not rely on secondary mortgage market due diligence or reform of the mortgage lending process to effectively prevent predatory lending because predatory practices may not be readily apparent in the loan documents.

■ ACB said that it will recommend that the Fed reduce one of the thresholds that define mortgage loans as HOEPA loans and require the Truth in Lending Act disclosures. ACB said the current threshold of an annual percentage rate of 10 percentage points over the maturity of a comparable Treasury security could be reduced to 8 percentage points without unduly restricting the subprime market.

ACB also cautioned against lowering the annual percentage rate and points and fees thresholds too far, and strongly opposed proposals that would prohibit loan terms that can be beneficial to consumers and lenders as part of legitimate transactions. "Restricting loan terms that have a legitimate role in the marketplace is not the right solution," ACB said.

■ ACB and its members pledged to increase access to high-quality homeownership education and counseling as an effective way to prevent predatory lending. But ACB said it opposed mandatory education and counseling programs and limits and/or restrictions on: financing fees and charges, refinancing, prepayment penalties, balloon payments, negative amortization, post-default interest rates and arbitration agreements, and the documenting of suitability.

"ACB is concerned that new regulations could discourage certain types of lending by unfairly labeling legitimate loans as ‘predatory’ or stigmatizing legitimate loan terms," ACB said.

The comment letter with attached member survey results is linked; it is also available by E-mail or fax.