Fed Cracks Down On Deceptive Lending

Central Bank Approves Plan That Strives To Thwart Practices That Fueled Credit Crisis

(AP)  The Federal Reserve has adopted rules to give home buyers more protection from the types of shady lending practices that have contributed to the housing crisis and propelled foreclosures to record highs.

Chairman Ben Bernanke and his central bank colleagues approved a plan Monday that would crack down on dubious lending practices that have hurt many of the riskiest "subprime" borrowers - people with tarnished credit histories or low incomes.

In that regard, the plan would:

• bar lenders from making loans without proof of a borrower's income.
  
  
• require lenders to make sure risky borrowers set aside money to pay for taxes and insurance.
  
  
• restrict lenders from penalizing risky borrowers who pay loans off early. Such "prepayment" penalties are banned if the payment can change during the initial four years of the mortgage. In other cases, a penalty can't be imposed in the first two years of the mortgage.
  
  
• prohibit lenders from making a loan without considering a borrower's ability to repay a home loan from sources other than the home's value. The borrower need not have to prove that the lender engaged in a "pattern or practice" for this to be deemed a violation. That marks a change - sought by consumer advocates - from the Fed's initial proposal and should make it easier for borrowers to lodge a complaint.

"Rates of mortgage delinquencies and foreclosures have been increasing rapidly lately, imposing large costs on borrowers, their communities and the national economy," Bernanke said.

"Although the high rate of delinquency has a number of causes, it seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high-cost loans, that were inappropriate for or misled the borrower," he added.

For all mortgages, the plan would require advertising to contain additional information about rates, monthly payments and other loan features, and it would curtail certain deceptive or misleading advertising practices.

Other practices also would be clamped down on. Lenders, for instance, have to credit a mortgage payment to the homeowner's account on the day it is received. And, brokers and others are forbidden from "coercing or encouraging" an appraiser to misrepresent the value of a home.

Consumer groups initially complained that the new rules are not strong enough. Lenders worry they are too tough, could limit mortgage options for people and made it harder for some to obtain financing.

The new lending rules may not get a test for some time because there are fewer home buyers these days, given all the problems in the housing and credit markets. Also, some of the shady practices - along with some lenders - have not survived, felled by the mortgage meltdown.

"Clearly this is closing the barn door after the fact," said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School of Business. Yet, she said, "this is a very important move. It absolutely will make a difference going forward."

Much will hinge on effective enforcement.

The plan would apply to new loans made by thousands of lenders, including banks and brokers. It would not cover current loans.

Those different lenders fall under a patchwork of regulators at the federal and state levels. So it will be up to each of these authorities to enforce the new provisions.

Fed Governor Randall Kroszner, the central bank's point person on the new rules, said the Fed's goal was to protect borrowers from unfair or deceptive practices while also not impeding the flow of credit.

The Fed's rules, he said, should "better protect consumers, while preserving their access to credit as they make some of the most important financial decisions of their lives."

[drputt45]

Next, could you do something about those 25 credit card applications I receive in the mail each week?

[docpeter-2009]

Posted by drputt45 at 01:10 PM : Jul 14, 2008: "Next, could you do something about those 25 credit card applications I receive in the mail each week?"
_________________

Please? I agree with drputt45.

I even use to return the uncompleted apps stapled together in their own return envelopes. That didn''t help. I even tried to put uncompleted apps into the return envelope for a different bank, that didn''t help. I finally moved and didn''t leave a forwarding address. That was my only soultion.

[Rhoda Meier]

Talk about locking the barn after the horse has been stolen! What in blazes took them so long? It was clear there was a problem over a year ago. But the middle class losing their homes and life savings did not move them to action. It was only when the big money folks'' own multi-mil investments were threatened that the Fed finally moved to action. Just like Katrina.

[singingrick]

This is a good start but it''s a little weak.

[xlib]

Can''t wait to hear what chuckie schumer, the mouth who started this mortgage mess.

[lochlan-2009]

"Fed Cracks Down On Deceptive Lending"

Open flood gates, close flood gates.

Sun goes up, sun goes down. Sun goes up, sun goes down. Their the ones who removed the regulations in the first place, so the whole lending scam could move forward. Hey America, keep your head in the sand, your *** in the air, and your wallet open.

[fstop100]

Put them all in prison.

[missingamerica]

"Deceptive lending" is a monster that the Republicans themselves created.

When they biased the bankruptcy laws against the consumer and in favor of the financial industry, this Administration and the Republicans greatly reduced the PERCERPTION of the risks that the financial industry felt they were exposed to when they loaned money.

And like any cannibilistic capitalist, the financial industry abused their new power until they began to eat themselves.

The Republicans should have looked within themselves when they were pondering whether Business operating in a loosely regulated environment could be trusted to "do the right thing".

[lochlan-2009]

put educated people in positions of power not cronies who can''''t tie their own shoes!

Posted by shado269

Oh, you under estimate them. If you want to steal billions in cash, you can try to rob a bank (you won''t see the $$$ and most likely will get a good stretch in jail), or you can become a politician (where even if you get caught stealing the billions, you won''t do a day after your pardon).

[blessed1959]

JUST ANOTHER EXAMPLE OF LACK OF PERSONAL RESPONSIBILITY! PEOPLE BOUGHT HOMES MORE EXPENSIVE THAN THEY COULD AFFORD TO KEEP UP WITH THEIR FRIENDS. NOW THEY WANT THE GOVT TO HELP THEM. "YOU" HAVE TO LEARN TO LIVE WITHIN "YOUR" MEANS AND NOT EXPECT OTHER PEOPLE TO PAY YOUR BILLS. I THINK WE NEED TO TEACH OUR CHILDREN HOW TO LIVE ON A BUDGET!!

[a8151947]

Like always. Fix it when it is to late. Bail the big boys out, why didn''t you do something about it before, somethinmg to stop it. I''ll tell you why, it would have cost you to much money in pay offs to you. No big house no big bank account. When you where told this would happen. You had to wait, like always. You all need to be out of office.

[flreason]

Closing the barn door after the horses are already loose. Another stellar moment added to the Bush legacy.

[jtdev1]

This problem is 2 fold:

1) Buyers were stupid to think the interest rates wouldn''t rise. I remember when a 12% mortgage was average.


2) Banks were seriously pushing ARMs. My bank tried to push a 4.3% ARM on me saying "Look at the rates, Do you really think they will be going up any time soon?" (then 2 years later - Wham! they went up)


The buyers were looking for more than they knew they were able to get...


The banks were looking for more interest than they knew they would normally get...


Simple thing? Greed! on BOTH sides. and now I have to suffer through some seriously tough times because of their greed.

[pensacola88]

These changes are far too lenient. The holes are wide open for shady and risky business practices to prevail and bite us again. These proposals were almost a carbon copy of the ones used after the S&L crisis of the 80''s. Beranrke needs to reach for the tap root and cut it. Mortgage Banks clearly are trading mortages as stocks and other securities. The Federal Government always has to bail the banks out of their own irresponsible mess.

[bobnjersey]

[The Fed''s rules, he said, should "better protect consumers, while preserving their access to credit as they make some of the most important financial decisions of their lives."]

these rules restrict the access to credit to applicants ... all the way around.

not everyone who did not verify income and did not ''put money to the side for insurance'' are defaulting.

[irishmail42]

So now that the money''s gone let''s get a safe. Makes sense to me. NOT!!! This administration and its minions makes me feel so protected. NOT!!

Now let''s drill our way out. RIGHT!

[blessed1959]

mcvet,

can you carry on an intelligent conversation without calling people names. i know all about ARMs. my parents had one in the seventies. their rate went from
5% to 17%. they had to struggle and work extra jobs but they overcame because they cut back and didn''t drive new cars, wear new clothes, eat out and all the other things our generation thinks we can''t do without. That''s not fascist! That''s hard working!!!

[noloyalisti]

WHAT TOOK THEM SO LONG? Oh yeah, the government is owned by the cheats so they have been and are part of the problem. Talk about the coyote guarding the chicken coop!

[sbbulldog]

It''s time to take a practical approach to a very real problem. Blame isn''t going to help.

Predatory lenders and their agents should be held accountable, but don''t through out the baby with the bath water. Stated income loans, just like adjustable rate loans are not evil. For the right person, at the right time, at the right risk level, based on loan to value and credit, ARM''s can be beneficial.

These new rules will wipe out more equity through reduction of home values than all the bad loans ever made. WRITE YOUR REPRESENTATIVE!

[aldon61]

mcvet,

can you carry on an intelligent conversation without calling people names. i know all about ARMs. my parents had one in the seventies. their rate went from
5% to 17%. they had to struggle and work extra jobs but they overcame because they cut back and didn''''t drive new cars, wear new clothes, eat out and all the other things our generation thinks we can''''t do without. That''''s not fascist! That''''s hard working!!!


--------------------------------------------------------------------------------

Posted by blessed1959 at 04:18 PM : Jul 14, 2008

Huh? MCVet hasn''t posted on this site.

[credibility2]

The government should also crack down on individuals who think that just because they breathe air that they''re entitled to getting a loan for a home when they have an atrocious credit history and questionable finances. The government should also crack down on stupid individuals who entered into these loans without benefit of legal counsel specializing in loans, mortgages and real estate acquisitions. The lenders are just part of the problem. The other major part rests with the ignoramuses who thought they deserved to get a loan in the first place with their dismal and questionable financial and credit histories.

[sistatee-2009]

Wasn''t it the government that forced banks to lend to people (mostly the inner city, but not always) that the banks would otherwise have rejected for mortgages?

[drivelphobe]

Shady lenders only deal with shady borrowers. They should all go down together. No one took out any loan they didn''t understand. They are all crooked, attempting to get some kind of deal. It''s just the "poor me" mentality like the Katrina "victims", entitlement seeking scumbags sucking on the taxpayers'' teats.

[erasmus81]

drivelphobe

"It''''s just the "poor me" mentality like the Katrina "victims", entitlement seeking scumbags sucking on the taxpayers'''' teats."

You have such a way with words.:)

[drivelphobe]

erasmus81...

Thank you. Do you have any suggestions for improvement? At my age, it is difficult to recall some of the vocabulary from the past.

I don''t suppose you have any of these thieves in Canada. The USA is filled with opportunistic individuals who scream they were cheated when things go awry. Most of the borrowers in this area were scheming, lying, deceitful people taking out loans they shouldn''t have qualified for. The bailout is a major error in my opinion.

Have a nice day.

[noloyalisti]

Typical, blame the individuals for the unholy alliance between the big corporate mortgage lenders and the government (it''s called fascism by the way).

Like blaming the soldiers for dying for oil, you must at some point realize the extreme propaganda that falls on us everyday from the war profiteers and marketers.

[kissamaarse]

Why is it that when the American government is socialistic and bails out big businesses with our tax dollars, the conservatives are all for it? But when there is even scant talk about universal health care, the conservatives go nuts over "socialized" medicine. Why?

[caldwellptr]

Personally I believe going to a loan shark over a bank is better .... at least the loan shark knows your name and you know you will get personal one on one service.

[bogusbones]

too little, far too late. the problem with this administration from day one was to allow the economy to run without any oversight from agency regulators. cut the budgets, the markets will take care of themselves. bunk!!! too many people get hurt and after the fact, the marketing machine goes into action saying we won''t let this happen again. the problem is they could have prevented this entire economic fiasco but as usual - a few rake in the cash and many now face a life of misery. FORECLOSURE NOTICE - SMALL RANCH IN CRAWDADDY TEXAS COMPLETE WITH A COWBOY CLOWN.

[caldwellptr]

Millions of Americans do their banking at the corner check cashing place and loan store. I have not heard on any of these type of places going under, even though they charge the same outrageous amounts for money changing services. I found it suprising that the Mega Banks infringed on that territory, were unable to make it work, but still come out smelling like a trillion bucks.

[caldwellptr]

I guess you need to be a U. S. Senator to get special treatment from Countrywide and the likes.

[kennedy7955]

This is way too late. All the lenders that created the mortgage mess are long gone. This is feel good legislation designed to make the public think the government is doing something about the problem.

[kennedy7955]

If you want to see the lenders that created the bulk of this problem, go to www.ml-implode.com

[erasmus81]

drivelphobe

"I don''''t suppose you have any of these thieves in Canada."

None that I have heard of. We have these small "money mart" things where people can go and get a small amount of money until their cheques come in. But they aren''t too bad, because the government keeps a close eye on them.

"Most of the borrowers in this area were scheming, lying, deceitful people taking out loans they shouldn''''t have qualified for."

Either that or they were extremely DESPERATE.

[edward1975-2009]

Just like the Feds,johnny on the spot, this is the equivalent of sticking a finger in a hole in the ****.

[bozworth4]

Why is it that when the American government is socialistic and bails out big businesses with our tax dollars, the conservatives are all for it? But when there is even scant talk about universal health care, the conservatives go nuts over "socialized" medicine. Why?


--------------------------------------------------------------------------------

Posted by kissamaarse

Good question! Just follow the money! No republican or democrats, only politicians that would pimp their mother for a dollar, euro or yen!!

[gracchus1]

Actually, I view it as the Bush Admin. manipulating the system so the rich and superrich can get even richer and then the Fed steps in to regulate the system. This is deja vu - eerily similar to the S&L scandal of the 1980s.

[etheone]

This is a GREAT start. Now the lending Industry should start to better regulate itself before more punitive measures are taken. Like many other Industries, the problem lies not in the rules, but in the application of the rules. I think We must make ETHICS courses mandatory from high school thru the completion of One''s coursework, be it college, or beyond.

[missingamerica]

There is a sort of ironic side to one aspect of this sign of Republican greed.

I believe that the bank that the FDIC took over - IndyMac - had something over 10,000 depositors who had more than $100,000 on deposit.

I''m willing to wager that most - if not all - of those depositors voted Republican regularly and cheered tax cut after tax cut no matter the economic damage they would cause, and equally regularly cursed the Democratic Party for being - in those infamous words - the "tax and spend" Party.

Now, those same depositors stand to get 50 cents or less back for every dollar over $100,000 they had on deposit in IndyMac.

So what has really happened is that instead of their money going to taxes that help to educate people who may work for them, or to the highways that get them or their employees to work or their customers to their stores or their product to market, 50% of everything over $100,000 they had on deposit effectively went to unscrupulous loan officers in the form of incentive bonuses, or to bank executives who looked the other way at bad loans, or to Wall Street traders who played tricks buying and selling rotten credit derivatives.

In other words, instead of hundreds or thousands or even millions of Americans receiving some benefit from their taxes - which in turn would have benefited those same depositors, a dozen or two of their fellow Republicans stuck it to them and they will NEVER receive any benefit from their losses.

lollll...ironic, and funny...

[txgrouch2006]

I''ve got a GREAT idea for a rule that would help.

VOTE OUT ALL POLITICIANS WHO WERE BORN 1946-1957.

[cyberus-2009]

THE HORSE IS GONE!
THE COW IS GONE!
THE CHICKENS ARE GONE!
THE BARN IS BURNING!

QUICK QUICK LOCK THE BARN DOOR!

[dan3232321]

No kidding! Holy ***! Maybe we should investigate the deceptive politicians on both sides that allowed this entire pile of *** to start in the first place. Democrats are just as much to blame with their "everyone has the right to own a home" mentality as the Republicans with their "lets deregulate to the point of no regulation at all" mentality. I''m sure no one out there ever takes advantage of a lack of watch and regulation.

[randynason]

What a great, seven-years-late idea.

[harpoot]

As ever, our beloved administration is right on top of things. ROFLMAO

[r9119111]

Thank you Republicans. You''ve accomplished only part of you mission. Why have you not told us there''s more to come? You must be very proud about how you brought America to it''s knees in prayer. We actually don''t even need to worry about our enemies outside of our country. We need to be more afraid of the enemies from within. The ones who profess to be the real patriots while destroying the American Dream.

[skyk-2009]

No kidding! Holy ***! Maybe we should investigate the deceptive politicians on both sides that allowed this entire pile of *** to start in the first place. Democrats are just as much to blame with their "everyone has the right to own a home" mentality as the Republicans with their "lets deregulate to the point of no regulation at all" mentality. I''''m sure no one out there ever takes advantage of a lack of watch and regulation.

Posted by dan3232321 at 12:13 AM : Jul 15, 2008

Now the RECORD speaks TRUTH and the RECORD shows CLEARLY that Democrats were FIRMLY against the removal of all the Regulations and changing the Bankruptcy Laws. If you aren''t going to be accurate how can we expect to turn this whole thing around. The Republican Party, owned by Big Business, were the very people, in fact it was the Co Chair of the McCain Champaign, that took all the regulations off the Banks. When we got the loan on our house the Lender was REQUIRED to obtain our W-2''s to assure the Board that we were, in fact, able to make the payments. Why? Because the Bankruptcy Laws and Federal Regulations would cause them great difficulty if they didn''t. Let''s at least put the blame where it belongs.

[skyk-2009]

I guess you need to be a U. S. Senator to get special treatment from Countrywide and the likes.

Posted by caldwellptr at 06:18 PM : Jul 14, 2008

No, I''d say you need to be the Co-Chair of John McCain''s Champaign... He''s the guy who ALLOWED the lending people to WRITE our laws... That''s right folks the guy who run''s the economic''s for John McCain is RESPONSIBLE for the Enron Loophole. Now what''s the chance that Dr. Phil will have the perscription for what ails us?? LOL

[payasyougo]

It''s nice to know the government is here to save us once again. About 4 years too late.

[xmanborg]

Thank the LORD that George W Bush has finally come with is Government to SAVE US.