On December 18th, the Federal Reserve released its' 268-page "Proposed Rule" along with a request for public comment.  The Fed's proposal is broad-based and establishes many of the protections that would have been created by legislation recently passed in the House and Senate.  In fact, industry analysts and reporters say that higher industry standards can be achieved through "rule-making", thus eliminating the need for more laws.

 

If the Fed's Rule is adopted, it could seriously impact the future of mortgage lending practices and potentially eliminate specific loan programs.  Here's a brief overview of some of the provisions.  The proposed rule includes:

 

  • Proposals to prevent unfairness, deception and abuse.
  • Proposals to improve mortgage advertising.
  • Proposals to give consumers disclosures early.
  • Lowering the triggers to "high-cost" mortgages.
  • Prohibitions to extending credit without considering the borrowers' ability to repay.
  • Requiring creditors to verify the income and assets of a borrower with reasonably reliable third-party documents, such as W-2's, pay-stubs or tax returns.
  • Limitations on pre-payment penalties.
  • Prohibiting a Lender to pay YSP to a Broker unless the Broker has entered into a written agreement with the Borrower.

The proposed Rule includes extensive commentary on all the proposals.  Mortgage Brokers will be impacted by this Rule and all are urged to familiarize themselves with the entire Proposal.  To download a copy, follow the link to:  www.namb.org/images/namb/GovernmentAffairs/FRB%20Proposed%20Rule%20Draft.pdf