Today the Federal Reserve Board, under the authority of the Truth in Lending Act, unanimously voted to propose important changes to the mortgage industry. According to Business Week, the following proposed changes would affect subprime loans or those loans the Fed defines as “higher-priced mortgage loans” (loans with rates at least 3 percentage points above a comparable Treasury security for first mortgages and 5 percentage points for second loans, or home-equity loans):

• Creditors would be prohibited from engaging in a pattern or practice of extending credit without considering borrowers’ ability to repay the loan.
  
• Creditors would be required to verify the income and assets they rely upon in making a loan.
  
• Prepayment penalties would only be permitted if certain conditions are met, including the condition that no penalty will apply for at least sixty days before any possible payment increase.
  
• Creditors would have to establish escrow accounts for taxes and insurance.

The Fed also proposed another set of rules for all mortgages, including what the Los Angeles Times called “stricter disclosures on ‘yield spread premiums.'” These rules include:

• Curb or better disclose broker incentives.
  
• Prohibit coercion of appraisers.
  
• Prohibit loan servicers from engaging in unfair practices.
  
• Require better disclosure overall.
  

The proposal has been submitted for a 90-day period of public comment. After this timeframe, revisions could be made and the proposal must be voted on again. According to the Christian Science Monitor, “the Fed has indicated it would start to implement [the new policies] next year.”

Proposal highlights from Business Week
Statement by Chairman Ben S. Bernanke
How Fed proposal affects legislation

If you would like to apply for a Mortgage Loan, you can APPLY ONLINE HERE, you can call John Thomas at 302-703-0727.

John R. Thomas – NMLS 38783

Certified Mortgage Planner – Primary Residential Mortgage, Inc.

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