The Federal Reserve recently adopted rules designed to protect home buyers from the kind of loans that drove many into foreclosure.
The new rules apply to all lenders and not just to banks supervised by the Fed. Most are expected to take effect Oct.1, 2009. Escrow requirements won’t go into effect until April 1, 2010.
Here are the new requirements:
- Prevent loans made without documenting borrower’s income.
- Require lenders to escrow money to pay taxes and insurance for risky borrowers.
- Limit and in some cases ban prepayment penalties.
- Prohibit lenders from making a loan without considering a borrower’s ability to repay a home loan from sources other than the home’s value.
- Require mortgage advertising to contain information about rates, monthly payments and other features of the loan.
- Insist lenders credit a mortgage payment to a home owner’s account on the day it is received.
- Brokers and others are forbidden from "coercing or encouraging" an appraiser to misrepresent the value of a home.
All of these probably seem fairly obvious to you (they did to me), but the fact is that many unsuspecting borrowers got into trouble because these types of guidelines weren’t followed. I’m glad to see they’re taking some positive steps for the future.