Fed Rules Aim to Stem Abusive Lending

Washington Post (07/15/08) P. D1; ElBoghdady, Dina; Irwin, Neil
The Federal Reserve has approved new rules that aim to protect borrowers from abusive lending practices, especially those involving subprime loans. The requirements compel lenders to make subprime loans only to borrowers who have the ability to repay, to verify a borrower's income and assets and to establish escrow accounts for all first-lien mortgage loans; they also limit the use of prepayment penalties. The Mortgage Bankers Association is still studying the details of the Fed's document, but Steve O'Connor, the group's senior vice president of government affairs, says "the basic contours of the rules appear to be workable." The rules are scheduled to take effect on Oct. 1, 2009, and will not help borrowers who already have been hurt by deceptive mortgage practices.