New Fed Rules Established to Help Protect Consumers

The federal government recently unveiled new rules and regulations that are meant to strengthen oversight of the mortgage lending industry, protect consumers from fraud and predatory lending practices, and ensure that the catastrophic subprime mortgage crisis is never repeated.

Fed Chairman Ben Bernanke announced the new rules, saying they are “intended to protect consumers from unfair or deceptive acts and practices in mortgage lending, while keeping credit available to qualified borrowers and supporting sustainable homeownership.”
Besides offering broader protection for consumers, he explained, a uniform set of rules will level the playing field for lenders and increase competition in the mortgage market – which should help make loans more accessible and affordable.
Some of the major changes include the following:

  • Rules will make it harder for people who cannot demonstrate an ability to manage debt and repay loans to get mortgages.
  • Lenders will be prohibited from using certain types of misleading advertising, and will be held to a much higher standard in terms of disclosing mortgage costs and fees.
  • The use of prepayment penalties charged to borrowers who pay off their loans early will be significantly curtailed.
  • Mortgage lenders are prohibited from pressuring appraisers into artificially adjusting real estate values.
  • Lender will now provide written loan cost estimates within three days of accepting loan applications.
  • The new rules do not help homeowners who already face foreclosure, but that was not their intended purpose. They are instead meant to police the loan industry and prevent loose underwriting standards, unethical lending practices, and illegal activity in the mortgage broker industry. Consumer groups and mortgage industry organizations have praised the rules as a powerful step in the right direction, and the majority of the new regulations go into effect at the end of 2009.

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