Fed Establishes New Mortgage Rules for All Lenders

The Federal Reserve Board laid out a new rule in mid-July to better protect consumers and facilitate responsible lending.

This rule is an amendment to the home mortgage provisions of Regulation Z (Truth in Lending). Anecdotal evidence gathered from many sources has indicated that few small and community bankers in the Eighth District engaged in sub-prime loans. However, as a banker or other lender, here's what you need to know:

• The new mortgage rules apply to all lenders.
• Lenders must evaluate the borrower's ability to make scheduled payments; lenders must also verify the borrower's income and assets.
• Prepay penalties are banned in certain higher-priced loan situations and restricted in others.
• Consumers need to be given disclosures earlier in the process.
• Lenders will be required to establish escrow accounts for higher-than-average interest loans so that property taxes and insurance costs will be included in regular monthly payments.

Fed Chairman Ben Bernanke said in mid-July, "The new rules...will establish lending standards aimed at curbing abuses while preserving responsible sub-prime lending and sustainable homeownership. ...We believe the new rules will help to restore confidence in the mortgage market."

See the full details at www.federalreserve.gov/newsevents/press/bcreg/regz20080714.htm.