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Fed slaps new rules on mortgage lenders

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moh malekpour

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http://www.latimes.com/business/la-fi-fed15-2008jul15,0,6482071.story

"Although the high rate of delinquency has a number of causes, it seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high-cost loans, that were inappropriate for or misled the borrower," Bernanke said in a statement.

The new rules take effect Oct. 1 and will apply to all mortgage lenders, brokers, servicers and banks, not just those already regulated by the central bank.

"These rules are a step forward in returning common-sense business practices to the subprime lending market," said Paul Leonard, director of the California office of the Center for Responsible Lending, a nonprofit advocacy group.
 

stefan olafson

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I believe in the news story I watched, the new rules go into affect in Oct of 2009! I hope the news anchor was just wrong.
 

Riick

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NOT enough changed. NOT enough changed. NOT enough changed.

...... (yield spread) premiums had been a major cause of deceptive lending practices.

"Disclosure (of yield spreads) is not the answer, eliminate is the answer,"

Sen. Dodd expressed disappointment that the tougher measures did not extend to prime loans with adjustable payments and interest-only payment options, "also failing in large number."

Dodd said that the regulations overall were a positive first step.

NOT enough changed. NOT enough changed. NOT enough changed.
 

William K

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We don't want to push it now do we.

October 2009 is soon enough, after all it is going to take a while for them to actually READ the changes and COMPREHEND what is written. So I think just over a year and 3 months should be just about enough time for them to find someone to read it and interpret it for them.
 

Michael Tipton

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Highlights of Final Rule Amending Home Mortgage Provisions of Regulation Z (Truth in Lending)

The rule establishes a new category of "higher-priced mortgages" that includes virtually all closed-end subprime loans secured by a consumer's principal dwelling. Which loans qualify as "higher-priced" will be determined by a new index that will be published by the Federal Reserve Board.1
The rule, for these higher-priced loans:
  • Prohibits a lender from making a loan without regard to borrowers' ability to repay the loan from income and assets other than the home's value. A lender complies, in part, by assessing repayment ability based on the highest scheduled payment in the first seven years of the loan. To show that a lender violated this prohibition, a borrower does not need to demonstrate that it is part of a "pattern or practice."
  • Prohibits a lender from relying on income or assets that it does not verify to determine repayment ability.
  • Bans any prepayment penalty if the payment can change during the initial four years. For other higher-priced loans, a prepayment penalty period cannot last for more than two years.
  • Requires that the lender establish an escrow account for the payment of property taxes and homeowners' insurance for first-lien loans. The lender may offer the borrower the opportunity to cancel the escrow account after one year.
The rule, for all closed-end mortgages secured by a consumer's principal dwelling:
  • Prohibits certain servicing practices: failing to credit a payment to a consumer’s account as of the date the payment is received, failing to provide a payoff statement within a reasonable period of time, and "pyramiding" late fees.
  • Prohibits a creditor or broker from coercing or encouraging an appraiser to misrepresent the value of a home.
  • Creditors must provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan secured by a consumer's principal dwelling, such as a home improvement loan or a loan to refinance an existing loan.
The rule, for all mortgages:
  • Requires advertising to contain additional information about rates, monthly payments, and other loan features. The rule also bans seven deceptive or misleading advertising practices, including representing that a rate or payment is "fixed" when it can change.
Based on compelling evidence from consumer testing, the Board is withdrawing the proposed rule regarding yield-spread premiums. The Board, however, intends to analyze alternative approaches to this issue as part of its ongoing review of the rules for closed-end loan rules under Regulation Z.
Compliance with the new rules, other than the escrow requirement, is mandatory for all applications received on or after October 1, 2009. The escrow requirement has an effective date of April 1, 2010 for site-built homes, and October 1, 2010 for manufactured homes.
Footnotes
1. The rule's definition of "higher-priced mortgage loans" will capture virtually all loans in the subprime market, but generally exclude loans in the prime market. To provide an index, the Federal Reserve Board will publish the "average prime offer rate," based on a survey currently published by Freddie Mac. A loan is higher-priced if it is a first-lien mortgage and has an annual percentage rate that is 1.5 percentage points or more above this index, or 3.5 percentage points if it is a subordinate-lien mortgage. This definition overcomes certain technical problems
 

Terrel L. Shields

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Not that it matters...2008, 2009. They are just closing the barn door after the horses escaped. The proof will be 20 years from now when it happens all over and those rules were long discarded because they didn't have a problem during the interim...
 

Michael Tipton

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So, appraiser's can be coerced when financing a second home or investment property? Hey FED, is this another mixed message?

The rule, for all closed-end mortgages secured by a consumer's principal dwelling:
  • Prohibits certain servicing practices: failing to credit a payment to a consumer’s account as of the date the payment is received, failing to provide a payoff statement within a reasonable period of time, and "pyramiding" late fees.
  • Prohibits a creditor or broker from coercing or encouraging an appraiser to misrepresent the value of a home.
  • Creditors must provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan secured by a consumer's principal dwelling, such as a home improvement loan or a loan to refinance an existing loan.
 

ghrousseau

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Virginia
Not that it matters...2008, 2009. They are just closing the barn door after the horses escaped. The proof will be 20 years from now when it happens all over and those rules were long discarded because they didn't have a problem during the interim...


1. The rule's definition of "higher-priced mortgage loans" will capture virtually all loans in the subprime market, but generally exclude loans in the prime market. To provide an index, the Federal Reserve Board will publish the "average prime offer rate," based on a survey currently published by Freddie Mac. A loan is higher-priced if it is a first-lien mortgage and has an annual percentage rate that is 1.5 percentage points or more above this index, or 3.5 percentage points if it is a subordinate-lien mortgage. This definition overcomes certain technical problems


This part of the ruling that concerns me. The requirement of using 1.5% above an average prime rate APR will make virtually every single FHA loan considered "higher-priced." The Up-front FHA Mortgage insurance premium that is financed into the loan balance is counted in the APR figure. 1.5% is the average premium. If the government is not careful or too overzealous they will kill the rest of the wholesale broker business being done. North Carolina passed a similar law which went into affect a the beginning of this year. It had some really bad unintended consequences.
 

ghrousseau

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Virginia
NOT enough changed. NOT enough changed. NOT enough changed.

...... (yield spread) premiums had been a major cause of deceptive lending practices.

"Disclosure (of yield spreads) is not the answer, eliminate is the answer,"

Sen. Dodd expressed disappointment that the tougher measures did not extend to prime loans with adjustable payments and interest-only payment options, "also failing in large number."

Dodd said that the regulations overall were a positive first step.

NOT enough changed. NOT enough changed. NOT enough changed.


Disclosure (of yield spreads) is not the answer, eliminate is the
answer,"


That is the quickest way to shut down the entire wholesale lending business across the united states. Wholesale currently accounts for 65 to 70% of all originations.
 
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