New Rules For Mortgage Lenders

The Federal Reserve Board Monday unveiled rule changes intended to curb deceptive mortgage lending practices, most of which will take effect in October 2009 and apply to all lenders whether they are supervised at the state or federal level.
Although lenders have drastically cut back on the subprime loans targeted by the most restrictive of the new rules, the rules could also apply to some jumbo mortgages and alt-A loans that carry high interest rates and hamper the recovery of lending to borrowers with blemished credit.
The most stringent new rules put forward by the Fed apply only to high-interest-rate loans. They include restrictions on prepayment penalties and requirements that lenders set up escrow accounts to collect payments for property taxes and homeowners` insurance on first-lien loans. The escrow requirement won`t be phased in until 2010 to allow lenders time to adapt.
Lenders making "higher priced" mortgage loans -- a category that covers some but not all "subprime" loans -- will also be required to assess a borrower`s ability to repay the loan from their income and assets other than the home itself. Borrowers seeking these loans will be required to verify their income and assets.
The changes to Regulation Z, which spells out enforcement of the Truth in Lending Act, also include several measures that will apply to all mortgage loans. There are new prohibitions against coercing appraisers to inflate a home`s value and a requirement that lenders provide a good faith estimate of loan costs within three days after a consumer applies for a mortgage. The Fed is also banning certain deceptive or misleading advertising practices such hiding the fact that a rate or loan payment can change.
With states like New York and North Carolina already adopting similar or more stringent measures, the Fed`s actions were largely welcomed by the lending industry, which sees a patchwork of conflicting regulations at the state and local level as cost prohibitive.

Published on Inman News (http://www.inman.com)