Fed comes up with new mortgage protection measures news
19 December 2007

The US Federal Reserve Board proposed new protections for high-cost mortgage borrowers on Tuesday 18 December, to avoid a repeat of the loose lending norms that have put hundreds of thousands of Americans at the risk of losing their homes, and dragged the national economy to the brink of recession.

US lenders will now have to determine that borrowers can afford the mortgage before making a loan, the Fed plan proposes. Borrowers will get details on their brokers' compensation and be billed monthly for annual charges like property tax and insurance. The new regulations are open for public comment over 90 days, before they become final.

US Federal Reserve Board''Unfair and deceptive acts and practices have hurt not just borrowers and their families, but entire communities and, indeed, the economy as a whole,'' Fed chairman Ben Bernanke declared at the board meeting to discuss the proposals.

US Congressmen have criticised the Fed for being too slow in curbing dangerous lending practices. The Home Ownership and Equity Protection Act gives the Fed broad power to stamp out dangerous loans.

In the summer of 2006, Fed staff held several forums across the country to hear suggestions for new mortgage rules, and Tuesday's proposal is the culmination of those meetings. Steps include prohibiting advertisements for mortgages from using terms like ''fixed-rate loan''.

The aim is to protect borrowers with interest rates of more than 3 per cent above Treasury securities of similar duration. A 30-year Treasury bond yielding around 4.55 per cent, and so a 'high-cost' 30-year mortgage loan would today have an interest rate of 7.55 per cent or higher.

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Fed comes up with new mortgage protection measures