New Mortgage Rules Will Teach Others What CUs Already Know
WASHINGTON -- Other lenders will have to be as careful as most credit unions have been in making home loans as a result of rules approved by the Federal Reserve last week.
Lenders will be barred from making loans without proof of the borrower's income and must consider a borrower's ability to repay the loan from sources aside
from the value of the home. In addition, lenders will have to ensure that borrowers set aside money for taxes and insurance.
Also, the rules restrict the penalties lenders can impose for paying off loans early and require advertisements about mortgages to contain more information about rates and monthly payments.
"Credit unions in general aren't typically putting members in higher priced loans," said Carrie Hunt, NAFCU senior counsel and director of regulatory affairs. "We want to be protective of consumers, while being aware of additional compliance costs. These rules balance that."
One change that will impact credit unions concerns good faith estimates, which are currently required only on mortgage loans but will now be mandated for any loan secured by a borrower's main dwelling. Lenders will not be able to charge any fees--except to cover the costs of credit checks--until after they issue the estimate.
Both CUNA and NAFCU had urged the Fed to allow creditors to charge fees up front, as long they were refundable.
Under the new rules, creditors and mortgage brokers cannot coerce appraisers to misstate a home's value, a provision supported by both trade associations.
Also, companies servicing mortgage loans cannot pyramid late fees, a practice that takes late fees from regular payments and leaves part of the payment overdue.
CUNA Senior Assistant General Counsel Jeff Bloch said the group is "generally supportive" of the new rules, and the organization's governmental affairs committee studied them and found that they won't be especially burdensome for credit unions.
Federal Reserve Chairman Ben S. Bernanke said the rules are intended to prevent a recurrence of another subprime crisis and give consumers more information when making decisions about mortgages.
"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," Bernanke said at the July 14 meeting where the rules were approved.
The rules do not apply to existing mortgages and takes effect on Oct. 1, 2009.