Fed Issues Final Version of New Mortgage Rule
After several months of comments on the proposed rule released in December 2007, the Fed approved a final rule amending Regulation Z. In a press release and related rule highlights, the Fed summarized the new rule which, among other things, restricts certain mortgage lending practices defined as "unfair, abusive or deceptive," requires additional notices to mortgage borrowers, and imposes additional restrictions on mortgage lenders' advertising.
The new rule, most provisions of which will be effective October 1, 2009, creates a new category of mortgage loans called "higher-priced loans" (determined by reference to an index published by the Fed) to target subprime mortgages. The rule also contains additional regulations applicable to all mortgages.
Specifically, for mortgages in the category of "higher-priced loans," the rule provides:
The new rule, most provisions of which will be effective October 1, 2009, creates a new category of mortgage loans called "higher-priced loans" (determined by reference to an index published by the Fed) to target subprime mortgages. The rule also contains additional regulations applicable to all mortgages.
Specifically, for mortgages in the category of "higher-priced loans," the rule provides:
- lenders must assess a borrower's ability to repay the loan from income and assets other than the home's value, taking into account the highest scheduled payment in the first seven years of the loan;
- lenders must not rely on unverified income or assets to determine repayment ability;
- lenders must not impose prepayment penalties if the loan payment can change in the first four years of the loan, and prepayment penalties are limited to two years; and
- lenders must establish an escrow account for taxes and insurance for first-lien loans.
- lenders must credit a payment the date it is received, must provide a payoff statement within a reasonable time, and must not capitalize late fees;
- lenders and brokers must not coerce an appraiser to misrepresent the value of a home; and
- lenders must provide a good faith estimate of loan costs, including a schedule of payments, within 3 days of an application.
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