Fed Issues Guidelines To Prevent Subprime Implosion Redux

New guidelines from the Federal Reserve will require federally regulated lenders to closely evaluate borrowers’ ability to repay their mortgages. The guidelines will require the following measures to keep fiscally unsound borrowers from shouldering more debt than they can afford:

    Income Verification: Creditors will be discouraged from making loans that cannot realistically be repaid.
    Clear Disclosures: Mortgage terms must be clearly disclosed so borrowers know precisely if and when rate increases lie ahead.
    Refinance Opportunities: Prior to any rate increase, consumers will have 60 days to refinance the loan.

Trade groups find fault with the regulations because they will prevent risky borrows from receiving credit:

Still, trade groups representing mortgage lenders said the guidelines come with a downside: They will reduce the availability of credit for borrowers. The groups urged Congress not to pass legislation that would put similar standards into law.

The proposed guidelines would only affect federally regulated lenders, many of whom have already changed their practices. We urge Congress to ignore the trade groups and enact laws that would apply to the independent, non-bank institutions that are truly responsible for the subprime mortgage meltdown.

Tougher standards urged in borrowing [AZ Central]
(Photo: irina slutsky)