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A Federal Reserve Proposal Regarding Foreclosures – Who Does it Benefit?

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Real Estate Agent

The Federal Reserve has proposed a rule that would disable the most effective legal tool that borrowers have to fight foreclosures, and has rankled the ire of hundreds of consumer and civil rights organizations, state and local legal aid programs, and homeowners' attorneys.

What could cause the uproar - It is the Fed's proposed rule which would disable the most effective legal tool that borrowers have to fight foreclosures.

The Truth in Lending Act provides borrowers the "right of rescission," Since 1968, the ability to undo a home refinancing or home equity loan within three years of the closing if the lender did not make proper disclosures.

While requiring strict compliance, the law has made allowances for mere mistakes by lenders.

Disclosure has been the mainstay of consumer protection in the mortgage market.

While supporting this change, the Federal Reserve has cited concerns over costs associated with bank compliance.  The proposal would require borrowers to pay off remaining principal before the lender gives up its security interest.  The change would make it nearly impossible for troubled borrowers.  Therefore the proposed change would benefit the creditor who violated the law rather than the borrower, escalating properties into foreclosure, which may have been avoided.

The concerned consumer and civil rights organizations, state and local legal aid programs, and homeowners' lawyers have signed a letter asking that the proposal be withdrawn.

There is an excellent article accessible via the New York Times this morning, titled, "The Fed and Foreclosures."

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Juli Vosmik
Dominion Fine Properties - Scottsdale, AZ
Scottsdale/Cave Creek, AZ real estate 480-710-0739

Myrl, did you mean the three DAY right of rescission?  I just looked this up and could find no reference to a 3 year time period.  If there is such a long period, would you please send me the source so I can read up on that?

Nov 29, 2010 03:40 AM
Mary Douglas
United Country Ponderosa Realty, Red Feather Lakes, Colorado - Red Feather Lakes, CO
REALTOR, Red Feather Lakes, Colorado

Hi Myrl, I was a little baffled by this article as well.  I know borrowers have 3 days to recind, I'm not sure under what circumstances a 3 year window exists.  Learn something new everyday. 

Nov 29, 2010 04:12 AM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

Juli - The source of the "three year" window was the New York Times article referenced at the end of my blog:  http://www.nytimes.com/2010/11/29/opinion/29mon2.html?ref=opinion

Nov 29, 2010 04:20 AM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

Bob - When I saw the article which precipitated this post, I was astounded.  I thought the information important enough to share.

Nov 29, 2010 04:22 AM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

Mary - I was also curious about that.  I suspect the 72 hour or 3 day period we are accustomed to, refers to the cooling off period.  However, if a borrower believes there has been a failure to disclose, they may try to rely on the three year timeframe.

Nov 29, 2010 04:25 AM
Marcy Moyer
eXp Realty of California Silicon Valley Probate, Trust, and Investment Sales - Mountain View, CA
Probate, Trust, and Investment Specialist

Myrl I had not heard of the 3 year rule either. I think if more consumers knoew about this it may be used more often.

Nov 29, 2010 06:21 AM
Jack Mossman - The Nines Team at Keller Williams in Stockton
The Nines Team At Keller Williams - Stockton, CA
The Nines Team at Keller Williams in Stockton

Myrl ... the Fed is now gaming the economic system.  Even Alexander Hamilton would have voted "no" if he'd known how distorted the system would become.  There has always been a disconnect between the "market economy" and the "fed economy" ... and the ordinary guy is the one who is most disconnected!  Thanks for sharing ...

Nov 29, 2010 12:34 PM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

Marcy - I kept reading and re-reading the source information for this blog.  I think we all learn something new most everyday!

Nov 29, 2010 01:13 PM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

Jack - Aha, you quote one of my favorite statesmen, Alexander Hamilton.  And you are right about the ordinary guy being the most disconnected, or just plain shut out of the economy. 

Nov 29, 2010 01:14 PM
Jim Hale
ACTIONAGENTS.NET - Eugene, OR
Eugene Oregon's Best Home Search Website

The Fed is in the hunt for the title of Enemy of the People.

Nov 29, 2010 03:42 PM
Juli Vosmik
Dominion Fine Properties - Scottsdale, AZ
Scottsdale/Cave Creek, AZ real estate 480-710-0739

I did some more research today and could find nothing about a 3 year ruling.  Okay, I PROMISE to do some more research.

Nov 29, 2010 05:13 PM
Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional
Charles Rutenberg Realty - Clearwater, FL
Palm Harbor, Dunedin, Clearwater, Safety Harbor

Myrl - thanks for sharing this latest bit of information! From one day to the next, I never know what they will come up with next!

Nov 30, 2010 01:53 AM
Elizabeth Weintraub Sacramento Broker
Elizabeth Anne Weintraub, Broker - Sacramento, CA
Put 40 years of experience to work for you

This is only maddening if you think that the Fed has the best interests of the public at heart or somehow represents the people of the United States.

Nov 30, 2010 02:12 AM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

Juli - You can click on that link at the end of the blog to get the source information.

Nov 30, 2010 03:09 AM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

Barbara-Jo, We continue to learn new things each day!  The 3 year rule was something which had remained unknown to me until the New York Times article came out.

Nov 30, 2010 03:10 AM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

Elizabeth - I think it was PBS which presented the documentary, "Inside the Meltdown" which provided amazing insight into the events at the Fed during the collapse of the Wall Street a couple years ago.  I found it fascinating that Hank Paulson and others were so virulent in their beliefs for relaxed regulation of the marketplace, yet were left to sound the alarm before President Bush and Congress, while asking for bailouts, with hats in their hands.

Nov 30, 2010 03:14 AM
Gary Woltal
Keller Williams Realty - Flower Mound, TX
Assoc. Broker Realtor SFR Dallas Ft. Worth

Myrl, I agree banks need to be in compliance and the power does not need to shift AWAY from the borrower.

Nov 30, 2010 08:58 AM
William Johnson
Retired - La Jolla, CA
Retired

Hi Myrl, I didn't sign up for another site NYT, so I didn't access the article. I am sure I will find it online. Thanks for bringing this subject forward.

Nov 30, 2010 09:18 AM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

Gary -It seems few shifts have been toward the consumer in recent years, other than changes to credit card rules which came a few months ago.  It is surprising however, how few of us actually knew of this 3 year rule!

Nov 30, 2010 11:51 AM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

William - With the link I provided at the end of this blog, you shouldn't need to sign up to read the article!  I hope you had a great Thanksgiving!

Nov 30, 2010 11:52 AM
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