I wrote the following letter to Ellen Seidman in January of 2000.  She (or her underlilng) sent me a reply indicating that an ARM loan was a stipping stone to an “A loan.”  Not exactly consistent with her cliam that she was sounding the alarm.

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I am a lawyer who has attempted to counsel many clients concerning lending issues over the years.
In my view, you (the OTS) are presiding over the biggest consumer rip-off in the history of the U.S.  I’ve had many clients report their home is in foreclosure after refinancing with an alternative ARM loan with pre-payment penalties.  The average person can’t evaluate the risk or cost associated with a prepayment penalty. 
In the view of many, the residential mortgage transaction is one of the most complex transactions, because of the intersection or overlay of federal and state law.  The drafter of your regulations have never conducted a mortgage settlement.  Even educated sophisticated consumers struggle to understand the transaction they are entering into. 
The fact that you are grudgingly questioning your assumption that “most components of a loan contract should be within the bounds of safety and soundness and be a matter of negotiation” reveals the extent of the OTS’ departure from reality.  I hate to say it but -  there is very little negotiation in a typical mortgage application.  Few consumers compare the loan terms from lender to lender. 

The plain fact is that it is open season on the elderly, the financially unsophisticated, the partially illiterate, and other vulnerable persons.  While the OTS had good intentions, good intentions alone can do much harm.  The OTS has done much harm to the most vulnerable in our society by preempting state consumer protection laws.  You prostrate yourself before your God of “uniform regulations” for all lenders, while paying no homage to the all too frequent loss of a home.
The conduct of the OTS will “uniformly” dispossessed consumers from their homes.  The great irony that an industry that began to foster home ownership has morphed into an agency that now fosters loss of home ownership.  Not to worry!  Its uniform!
Most sub-prime lenders essentially telemarketing shops that scrub through the population seeking vulnerable persons who are sufficiently ignorant to prey upon. 

The OTS’ has aided and abetted such lenders by preempting state law.  Your conduct might feel good, because more power flows to the OTS, but it sure hurts the population.  You must know the danger in asking state regulators to audit state licensed lenders while enforcing the federal OTS regulations.  I don’t need a Ph.D to know that this regulatory scheme will result in disaster.
You state emphatically that state regulated lenders who want to make alternative transactions must now comply with 12 CFR 560.33 relating to prepayments.  Well - pardon me - but the regulation does not impose any significant limitations.
In my view, you should not preempt state law whatsoever.  Anyone intent upon deception and deceit likes complexity.  Alternative transactions are a dream for someone intent upon deception and deceit, because they have more complexity.  There are so many confusing provisions and terms that it is like squeezing a balloon.  Any predatory lender can make a few of the terms sound good and make a profit on the other disadvantageous terms.  If most consumers can’t understand how to compare prices for long distance telephone service, what makes you think they can compare prices for alternative mortgage transactions?  HOEPA is of little help because of its high threshold.  Most predatory lenders impose fees and closing costs just below the HOEPA thresholds.
No one is gathering statistics on these state regulated lenders and how many foreclosures result from their alternative transactions.  As a result, no one knows how much harm is being done.  That means the OTS has no accountability. 
I can’t imagine how many innocent persons have lost their homes due to these loans you describe as “bridges to a conventional loan.”  Alternative mortgage transactions are not bridges; they are a tight-ropes that can only be navigated by the Flying Wallendas.

Perhaps, the regulators are distress of this current economic predicament. On the other hand, the purpose of bailing out banks is to bailout the falling economy of the country. But, in the past, banks had failed of doing the right thing, which is to lend money to people and companies who need it most. Now, people are asking, where did the money that was given by the Fed go? So, hopefully, this bail out would be successful not only on saving us but as well as on bailing out our environment. Nonetheless, the Center for Responsible Lending, together with ACORN, pushed for legislation to be passed that made easy loans to people who were high risk with other than prime terms – otherwise known as subprime lending. President Obama was rumored to have been one of the congressional Democrats close to ACORN.  The link to the President as well as the activities of the two groups is being covered by an investigative series by Anita MonCrief, who also testified in court. She has fingered the CRL and ACORN as power players in the subprime scandal.