Regulating Home Equity Loan Advertisements, Applications and Agreements

Abstract

I. Introduction Consumers are bombarded with advertisements for home equity loans. Lenders advertise home equity loans through newspapers, brochures, direct mailings, and by cross-selling with other financial products. These advertisements often do not provide information about such loan features as balloon payments, repayment periods, negative amortization, rate ceilings, change of term clauses and, most importantly, that the consumer risks losing his or her home in the event of default. Such features, if misunderstood, pose great financial risk to many consumers, particularly those with little excess disposable income and savings. The home equity loan market has increased dramatically since the Tax Reform Act of 1986.' The phase-out of the interest deduction for non-mortgaged consumer debt made home equity loans an enormously popular device for consumers to continue deducting interest payments. The Federal Reserve estimated that there was $75 billion in outstanding home equity debt at the end of 1988, and that the total was growing approximately 20% per year. 2 The continued proliferation of home equity loans, combined with lenders' aggressive marketing techniques and the lack of information available to consumers at the time the buying decision is made, threatens the very foundation of home ownership. Consumers must be afforded a first-glance basic understanding of home equity loans and the inevitable consequences of default if home ownership and true consumer protection is to be sustained. This article examines the current regulation of home equity loan marketing. Sections II and III discuss the mechanics and potential abuses in home equity loan mar

Cite this paper

@inproceedings{Levine2016RegulatingHE, title={Regulating Home Equity Loan Advertisements, Applications and Agreements}, author={Samuel H. Levine and Maureen M. Over and Harold I. Levine}, year={2016} }