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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

banks. The OCC supervised the national banks. The OTS or state regulators were re-
sponsible for the thrifts. Some state regulators also licensed mortgage brokers, a
growing portion of the market, but did not supervise them. 
Despite this diffusion of authority, one entity was unquestionably authorized by
Congress to write strong and consistent rules regulating mortgages for all types of
lenders: the Federal Reserve, through the Truth in Lending Act of . In , the
Fed adopted Regulation Z for the purpose of implementing the act. But while Regu-
lation Z applied to all lenders, its enforcement was divided among America’s many fi-
nancial regulators.
One sticking point was the supervision of nonbank subsidiaries such as subprime
lenders. The Fed had the legal mandate to supervise bank holding companies, in-
cluding the authority to supervise their nonbank subsidiaries. The Federal Trade
Commission was given explicit authority by Congress to enforce the consumer pro-
tections embodied in the Truth in Lending Act with respect to these nonbank
lenders. Although the FTC brought some enforcement actions against mortgage
companies, Henry Cisneros, a former secretary of the Department of Housing and
Urban Development (HUD), worried that its budget and staff were not commensu-
rate with its mandate to supervise these lenders. “We could have had the FTC oversee
mortgage contracts,” Cisneros told the Commission. “But the FTC is up to their neck
in work today with what they’ve got. They don’t have the staff to go out and search
out mortgage problems.” 
Glenn Loney, deputy director of the Fed’s Consumer and Community Affairs
Division from  to , told the FCIC that ever since he joined the agency in
, Fed officials had been debating whether they—in addition to the FTC—should
enforce rules for nonbank lenders. But they worried about whether the Fed would be
stepping on congressional prerogatives by assuming enforcement responsibilities that
legislation had delegated to the FTC. “A number of governors came in and said, ‘You
mean to say we don’t look at these?’” Loney said. “And then we tried to explain it to

them, and they’d say, ‘Oh, I see.’” The Federal Reserve would not exert its authority
in this area, nor others that came under its purview in , with any real force until
after the housing bubble burst.
The  legislation that gave the Fed new responsibilities was the Home Owner-
ship and Equity Protection Act (HOEPA), passed by Congress and signed by Presi-
dent Clinton to address growing concerns about abusive and predatory mortgage
lending practices that especially affected low-income borrowers. HOEPA specifically
noted that certain communities were “being victimized . . . by second mortgage
lenders, home improvement contractors, and finance companies who peddle high-

rate, high-fee home equity loans to cash-poor homeowners.” For example, a Senate
report highlighted the case of a -year-old homeowner, who testified at a hearing
that she paid more than , in upfront finance charges on a , second
mortgage. In addition, the monthly payments on the mortgage exceeded her
income. 
HOEPA prohibited abusive practices relating to certain high-cost refinance mort-
gage loans, including prepayment penalties, negative amortization, and balloon pay-