New Loan Lending Rules Take Effect October 1, 2008

On July 15, the nation's central bank issued new lending rules which will take effect October 1, 2008. The rules will apply to all lenders, not just those regulated by the central bank.

"Rates of mortgage delinquencies and foreclosures have been increasing rapidly lately, imposing large costs on borrowers, their communities and the national economy," Federal Reserve Chairman Ben S. Bernanke said as he opened a meeting of the Federal Board, which approved the new rules.

The new regulations target the subprime mortgage market, which has been largely unregulated because the loans are secured and held by private investors. Subprime mortgages, designed to make loans available to borrowers with low incomes or poor credit, carry above-market interest rates to compensate investors for the added risk of default.


For subprime loans, the new rules will:

• Prohibit lenders from lending to borrowers who cannot repay the loan from income and assets other than a home's value.
• Require lenders to verify a borrower's income and assets.
• Ban prepayment penalties for the first four years of any adjustable-rate subprime mortgage; other subprime mortgages could have no prepayment penalties for two years.
• Require lenders to establish escrow accounts for property taxes and homeowner insurance for all first-lien mortgages.

For all mortgages, prime and subprime, the new rules will:

• Prohibit seven misleading advertising practices, including representing that a rate or payment is "fixed" if it will change over the course of the loan.
• Prohibit advertising in which different loans are compared unless all payments and rates are also disclosed.
• Prohibit foreign-language mortgage ads in which required disclosures are presented in English.
• Prohibit a lender from encouraging or coercing an appraiser to misrepresent a home's assessed value.
• Require lenders to credit borrowers' payments on the day of receipt.
• Prohibit so-called "pyramiding" of late fees.
• Require a lender to provide a payoff statement within a reasonable amount of time.
• Require a good-faith estimate of all loan costs and payments within three days of an application for any loan secured by a home's value, including home equity loans and refinancings of the original mortgage.

The rules "are intended to protect consumers while keeping credit available to qualified borrowers and supporting sustainable homeownership," Bernanke said.

Leisha Clure
Home Loan Consultant
(509) 263-0397 Cell
(509) 483-7049 Office
(509) 443-3935 Fax
WWW.HomemadeLoans.Com