Still Mortgaging the American Dream: Predatory Lending, Preemption, and Federally Supported Lenders

Abstract

This Article discusses the continuing problem of predatory lending abuses in the subprime home mortgage lending market and federal and state attempts to address the problem. Over the protests of consumer advocates, federal agencies have recently issued regulations preempting state predatory lending statutes as applied to national banks and thrifts. In addition, Congress is considering legislation that would preempt state predatory lending laws for all lenders. The Article considers the preemption debate, particularly in the context of federally supported lenders-banks, thrifts, and the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. Banks and thrifts receive support through the federal safety net, which includes deposit insurance. Fannie Mae and Freddie Mac are federally chartered, privately owned corporations that receive other types of federal support. The Article concludes that preemption is not warranted for national banks and thrifts or for other lenders, and that banks, thrifts, and the GSEs should be part of the solution to the predatory lending problem by originating, purchasing, and/or securitizing subprime loans in compliance with state and federal law.

Keywords: Predatory lending, Subprime lending, Home mortgage, Home mortgage loan, Home equity loan, Real estate finance, Real property law, Secondary mortgage market, Consumer protection, Preemption, HOEPA, Home Ownership and Equity Protection Act, Holder in due course, Fannie Mae, FNMA, Freddie Mac, FHLMC