Washington-- Senator Evan Bayh is calling on the Federal Reserve to establish specific rules to combat predatory lending practices that have contributed to the nation’s subprime mortgage crisis.

Bayh, along with 16 of his Senate colleagues, sent a letter to Federal Reserve Chairman Ben Bernanke outlining four components that should be included in rulemaking now being drafted by the Fed under the Home Owners Equity Protection Act (HOEPA) of 1994.

“We expect the Board to meet the duty Congress entrusted to it to end the abusive practices in the subprime market that have undermined confidence in the subprime mortgage market with serious consequences for the capital markets and the economy as a whole,” the senators wrote.

“The subprime mortgage crisis has triggered significant ‘turmoil’ in the financial markets that has affected other parts of the mortgage market. In fact, it is clear from your testimony and other statements that the problems caused by abuses in the subprime market are creating a significant drag on the economy as a whole. For that reason, and because of the central role homeownership has played in the creation of wealth for working Americans, we want to urge you and your colleagues on the Board to take four critical components as you prepare to issue the regulation.”

The senators said that the regulation should:

1. Establish a clear ability-to-pay standard for subprime and nontraditional loans.
2. Require escrow accounts for taxes and insurance for subprime loans and designate the failure to do so as an unfair or deceptive practice.
3. Constrain the use of no- and low-documentation mortgages.
4. Prohibit prepayment penalties for subprime mortgages.

In addition to Bayh, the letter was signed by Senators Daniel Akaka (D-HI), Barbara Boxer (D-CA), Sherrod Brown (D-OH), Tom Carper (D-DE), Robert Casey (D-PA), Chris Dodd (D-CT), Russ Feingold (D-WI), Tim Johnson (D-SD), John F. Kerry (D-MA), Amy Klobuchar (D-MN), Herb Kohl (D-WI), Frank Lautenberg (D-NJ), Robert Menendez (D-NJ), Jack Reed (D-RI), Charles Schumer (D-NY) and Jon Tester (D-MT).

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