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Federal Reserve (Fed) Governor Randall Kroszner addressed the audience of a Women in Housing and Finance (WHF) Symposium earlier this month to highlight the Fed’s efforts to mitigate foreclosures and prevent abuse, unfairness and deception in the residential mortgage market.
Governor Kroszner explained that the Fed’s proposed changes to Regulation Z offer a robust approach to affordability by extending credit that borrowers can afford to repay. “Our effort is to produce robust, clear and comprehensive rules based on a rigorous analysis of available qualitative and quantitative data.” The proposal is currently out for public comment until April 8, 2008 and can be viewed here.
The proposal includes requires that: 1) a lender maintain responsible underwriting practices that generally assess a borrower’s ability to repay; 2) a borrower’s income and assets are verified; and 3) lenders escrow property taxes and homeowners insurance to help borrowers meet these obligations.
“The regulations would prohibit a lender from engaging in a pattern or practice of making higher-priced loans based on the value of the borrower’s house rather than on the borrower’s ability to repay from income, or from assets other than the house,” Governor Kroszner explained.
The proposal also addresses prepayment penalties, steering and better and earlier information for consumers. The Board anticipates vigorous public comment and will promulgate a rule once it has carefully considered all of the public comment.
Governor Kroszner also noted the American Securitization Forum (ASF) and the HOPE NOW Alliance efforts to develop prudent loan modification programs aimed to protect borrowers on a systematic and sustainable basis. “I have been an active proponent of such streamlined systematic approaches to reduce transaction costs and to help mitigate foreclosure risk. And, I strongly encourage market participants to adopt and to implement these fast-track modifications proposals as quickly as possible, “Governor Kroszner said.
He said that while efforts are ongoing to prevent foreclosures, a lot more needs to be done. The Fed is considering stricter regulations in its proposed changes to Regulation Z to prohibit abusive and deceptive practices in the mortgage market under the Home Ownership and Equity Protection Act (HOEPA).
NASCUS President and CEO Mary Martha Fortney is President-elect of WHF. To read Kroszner's full speech, click here.
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