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Dec 18, 2007 5:49 pm US/Mountain
Fed Unveils New Safeguards For Homeowners
WASHINGTON (AP) ―
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The Federal Reserve approved new guidelines to help Americans safely take out home mortgages on Dec. 18, 2007.
CBS
The Federal Reserve endorsed new rules Tuesday that would give
Americans taking out home mortgages new protections against shady
lending practices.
The proposed rules, approved in a 5-0 vote by the board, are geared
to providing safeguards to the riskiest "subprime" borrowers, already
painfully stung by the housing and credit debacles. The proposal is
expected to apply to new loans made by all types of lenders, including
banks and brokers. The plan could be finalized next year.
The Fed, which has regulatory powers over the nation's banking system, is proposing:
- Restricting lenders from penalizing certain subprime borrowers
- those with tarnished credit or low incomes - who pay off their loans
early. The restriction would apply to loans that meet certain
conditions, including that the penalty expire at least 60 days before
any possible payment increase.
- Forcing lenders to make sure that subprime borrowers set aside money to pay for taxes and insurance.
- Barring lenders from making loans when they don't have proof of a borrower's income.
- Prohibiting lenders from engaging in a pattern or
practice of lending without considering a borrower's ability to repay a
home loan from sources other than the home's value.
"Unfair and deceptive acts and practices hurt not just borrowers
and their families, but entire communities, and indeed, the economy as
a whole," said Fed Chairman Ben Bernanke in prepared remarks. "They
have no place in our mortgage system," he added.
Fed policymakers also are considering requiring financial
disclosures to borrowers early enough to use while shopping for a
mortgage. Lenders could not charge fees - except for a fee to obtain a
credit report - until after the consumer receives the disclosures. The
Fed also will consider prohibiting certain types of misleading or
deceptive advertising for certain loans. It also would require that all
applicable rates or payments be disclosed in ads with equal prominence
as advertised introductory "teaser" rates.
In addition, the Fed is expected to propose barring lenders from
paying mortgage brokers a fee that exceeds the amount the would-be
borrower had agreed to in advance that the broker would receive.
And, the Fed would ban certain practices, such as failing to credit
a mortgage payment to a borrower's account when the company servicing
the mortgage receives it. The Fed also would prohibit a broker or other
company from coercing or encouraging an appraiser to misrepresent the
value of a home.
Before taking effect, the rules must be voted on again following a period of public comment and possible revisions.
The Fed's response has taken on heightened importance given the
meltdown in the housing and credit markets that has led to record
numbers of home foreclosures. The crisis has raised the odds that the
economy might fall into a recession, roiled Wall Street and given
Democrats and Republicans much fodder to blame each other.
The plan, if ultimately adopted, offers Bernanke, who took over the
helm in February 2006, an important opportunity to put his imprint on
the Fed's regulatory powers. Some critics have complained that
Bernanke's predecessor - Alan Greenspan, who ran the Fed for 18 1/2
years - failed to act as a forceful regulator especially during the
2001-2005 housing boom, when easy credit spurred lots of subprime home
loans and many exotic types of mortgages.
When the housing market went bust, subprime loans were most heavily affected.
Of the nearly 3 million subprime adjustable-rate loans surveyed by
the Mortgage Bankers Association from July through September, a record
4.72 percent entered the foreclosure process during those months. At
the same time, a record 18.81 percent of the subprime adjustable-rate
loans were past due.
When home values weakened, borrowers were left with loan balances
that eclipsed the value of their homes. They also were clobbered when
their loans reset with much higher interest rates.
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