The Federal Reserve endorsed new rules today that would give consumers taking out new home mortgage new protections from dishonest lenders. The proposal is expected to apply to new mortgage loans made by all lenders which would include brokers and banks. The plan is expected to be finalized sometime next year. The Fed is proposing:
1. Forcing lenders to make sure that subprime borrowers set aside reserves for taxes and insurance.
2. Taking away loan programs that do not require proof of income.
3. Prohibiting lenders from failing to consider a borrowers ability to repay a mortgage.
4. Restricting lenders from penalizing specific non prime borrowers with low income or bad credit - who pre pay their mortgage early. This would only apply to loans.
“Unfair and deceptive acts and practices hurt not just borrowers and their families, but entire communities, and indeed, the economy as a whole,” said Federal Reserve Chairman Ben Bernanke. He also added “They have no place in our mortgage system.
The Feds response has taken on greater importance given the subprime meltdown in the credit and housing markets. This crisis has raised the odds that the economy might be he headed for a recession.
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