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Washington
Fed vote on mortgage rules slated for July 14
WASHINGTON (7/9/08)—The Federal Reserve Board plans to vote July 14 on its proposed changes under the Home Ownership and Equity Protection Act (HOEPA) to address unfair or deceptive mortgage lending practices that would apply to subprime loans offered by all mortgage lenders. The Fed developed its plan, unveiled last December, in response to criticism on Capitol Hill that poor underwriting practices helped fuel the country’s housing and mortgage crises. Under the proposal, lenders would have to ensure borrowers have the ability to repay a loan, verify the borrower’s income, impose no prepayment penalties within 60 days of a mortgage reset, and provide escrow accounts for taxes and insurance for the first 12 months of a loan. The plan also bolsters disclosure practices. The Credit Union National Association (CUNA) generally supports the Fed’s use of its authority under HOEPA and the Truth in Lending Act (TILA) to issue its proposed rules intended to protect consumers from unfair and deceptive home mortgage lending and advertising practices. However, in a letter commenting on the specifics of the plan, CUNA has warned the Fed that modifications are necessary to ensure the rule does not cover more loans than the Fed may intend. “For the protections that apply to ‘high-cost’ loans, we were concerned that the threshold would be too low and would cover not only all subprime loans, but some prime loans as well, which we believe is not what the Fed intended,” according to Jeffrey Bloch, CUNA senior assistant general counsel. The Fed HOEPA proposal is one of many in the pipeline that will amend Regulation Z. For instance, the Fed issued a comprehensive proposal last year to address rules that apply to credit cards and other types of "open-end" loans. It issued additional proposals recently to coincide with the latest plans to address unfair and deceptive practices for credit cards and overdraft protection plans. These may be finalized by the end of the year. The Fed is also expected to issue another comprehensive proposal, probably within the next year, that will amend the Regulation Z rules for mortgage loans and other types of "closed-end" credit, such as auto loans, in which repayment periods are fixed. Separately, the U.S. Department of Housing and Urban Development is floating plan to change its rules that implement the Real Estate Settlement Procedures Act (RESPA) to adjust mortgage loan disclosures. HUD intends to finalize those rules by the end of the year. CUNA Comment Letter


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