Fed Unveils New Safeguards For Homeowners

Source: CBS News
Date: Dec. 18, 2007

The Federal Reserve endorsed new rules Tuesday that would give Americans taking out home mortgages new protections against shady lending practices.The proposed rules, approved in a 5-0 vote by the board, are geared to providing safeguards to the riskiest "subprime" borrowers, already painfully stung by the housing and credit debacles. The proposal is expected to apply to new loans made by all types of lenders, including banks and brokers. The plan could be finalized next year.The Fed, which has regulatory powers over the nation's banking system, is proposing:Restricting lenders from penalizing certain subprime borrowers - those with tarnished credit or low incomes - who pay off their loans early. The restriction would apply to loans that meet certain conditions, including that the penalty expire at least 60 days before any possible payment increase.Forcing lenders to make sure that subprime borrowers set aside money to pay for taxes and insurance.Barring lenders from making loans when they don't have proof of a borrower's income.Prohibiting lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value.