As required by the Dodd-Frank law, the Federal Reserve today proposed a set of minimum standards for home lending, creating an "ability-to-repay" requirement for most home loans, as part of an effort to make sure that U.S. lenders don't return to the shady practices of the housing market boom, according to an article by Alan Zibel at wsj.com.
The article said that "lenders would be able to meet that standard by verifying the consumer's income or assets or making a 'qualified mortgage' that requires the lender to calculate the maximum interest payment in the first five years. Loans that meet that standard would have protections against lawsuits. They also would have restrictions on fees and would not allow the principal balance to grow."
"The Fed also provided two more options for satisfying the 'ability-to-repay' standard. Those affect lenders refinancing mortgages with risky features and those in rural and other underserved areas. The Fed is seeking comments on the proposal by July 22. However, the central bank will not complete the process, as its authority over mortgage lending rules is scheduled to transfer to the new Consumer Financial Protection Bureau on July 21. At that point, the consumer bureau is charged with taking over the proposal," the article said.
The Board is publishing for public comment a proposed rule amending Regulation Z (Truth in Lending) to implement amendments to the Truth in Lending Act (TILA) made by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Regulation Z currently prohibits a creditor from making a
higher-priced mortgage loan without regard to the consumer's ability to repay the loan.
The proposal would implement statutory changes made by the Dodd-Frank Act that expand the scope of the ability-to-repay requirement to cover any consumer credit
transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan).
In addition, the proposal would establish standards for complying with the ability-to-repay requirement, including by making a "qualified mortgage." The proposal also implements the Act's limits on prepayment penalties.
Finally, the proposal would require creditors to retain evidence of compliance with this rule for three years after a loan is consummated.
The article said that "lenders would be able to meet that standard by verifying the consumer's income or assets or making a 'qualified mortgage' that requires the lender to calculate the maximum interest payment in the first five years. Loans that meet that standard would have protections against lawsuits. They also would have restrictions on fees and would not allow the principal balance to grow."
"The Fed also provided two more options for satisfying the 'ability-to-repay' standard. Those affect lenders refinancing mortgages with risky features and those in rural and other underserved areas. The Fed is seeking comments on the proposal by July 22. However, the central bank will not complete the process, as its authority over mortgage lending rules is scheduled to transfer to the new Consumer Financial Protection Bureau on July 21. At that point, the consumer bureau is charged with taking over the proposal," the article said.
The Board is publishing for public comment a proposed rule amending Regulation Z (Truth in Lending) to implement amendments to the Truth in Lending Act (TILA) made by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Regulation Z currently prohibits a creditor from making a
higher-priced mortgage loan without regard to the consumer's ability to repay the loan.
The proposal would implement statutory changes made by the Dodd-Frank Act that expand the scope of the ability-to-repay requirement to cover any consumer credit
transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan).
In addition, the proposal would establish standards for complying with the ability-to-repay requirement, including by making a "qualified mortgage." The proposal also implements the Act's limits on prepayment penalties.
Finally, the proposal would require creditors to retain evidence of compliance with this rule for three years after a loan is consummated.
Architecture Critic
Carter Horsley
Since 1997, Carter B. Horsley has been the editorial director of CityRealty. He began his journalistic career at The New York Times in 1961 where he spent 26 years as a reporter specializing in real estate & architectural news. In 1987, he became the architecture critic and real estate editor of The New York Post.
6sqft delivers the latest on real estate, architecture, and design, straight from New York City.
