WASHINGTON, July 14, 2008 (AFP) – The US Federal Reserve on Monday tightened home mortgage lending in a bid to improve consumer protection from practices blamed in part for the worst US real-estate crisis in decades. The Fed said its board of governors approved rules for home mortgage loans “to better protect consumers and facilitate responsible lending.”
“The proposed final rules are intended to protect consumers from unfair or deceptive acts and practices in mortgage lending, while keeping credit available to qualified borrowers and supporting sustainable homeownership,” Fed chairman Ben Bernanke said in a statement.
“Importantly, the new rules will apply to all mortgage lenders, not just those supervised and examined by the Federal Reserve.”
The new rules address two categories: all home mortgages and a newly defined category of “higher-priced mortgage loans” — effectively the subprime, or high-risk, home loans at the heart of spiraling loan defaults that burst a housing bubble two years ago.
In the subprime category, lenders will have to assess borrowers’ ability to repay the loan, verify their income sources and will be barred from penalizing prepayment except in certain circumstances.