Fed Proposes Changes for Mortgage Lenders

approved

The Federal Reserve took steps to change mortgage broker compensation, improve mortgage disclosures and proposed new rules to bar U.S. mortgage brokers from getting more compensation when offering higher cost loans.

Fed Chairman, Ben Bernanke, said during an open meeting of the board, ‘In recent years, consumers have been presented with a wider choice of mortgage products ‘.

President Obama has proposed that some of the Fed’s consumer protection powers be stripped and handed over to a new industry, Bernanke has said that the Central Bank should retain those authorities.

While proposing changes, the Federal Reserve also wants changes in place to make it easier for Americans  to understand how mortgage’s work.  Often borrowers, who did not fully understand the terms of their loans, bought homes they could not afford which contributed to the worst collapse in the housing and mortgage markets in 70 years.

‘Consumer’s need proper tools to determine whether a particular mortgage loan is appropriate for the circumstances’, said Bernanke.

The proposed changes include:

  • Mortgage lender’s must disclose and explain risky features like repayment penalties.
  • All explanations must be in a one page, Q&A format.
  • Improved disclosure of annual percentage rate (APR), to capture most fees and settlement cost’s paid by the borrower.
  • For adjustable rate mortgage customer’s, lender’s will be required to show consumer’s how their payments might change due to terms of the loan.
  • Lender’s must notify customer’s 60 days in advance of a change in their monthly payment.
  • Lender’s must provide a monthly statement of payment options for customers with payments that do not cover the interest of the loan.
  • Would ban certain payments to mortgage broker’s and loan officer’s that are based on the loans terms and condition’s.
  • Would prohibit leading consumers into transactions that are not in their best interest, but would lead to increased compensation for brokers and loan officers.
  • Prohibit lenders from terminating customer accounts for delinquency until the payment is over 30 days late.

The public and lending industry has 120 days to comment on the Fed’s proposed guidelines before they can be ratified and implemented.

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