The Federal Reserve has proposed sweeping new rules to clean up the market for subprime and all forms of home mortgages, according to MarketWatch.com. The proposed rules would not help current borrowers holding a loan but aim to head off another lending crisis like the one that has hurt the subprime mortgage industry.
The rule proposals – including tightening rules on prepayment penalties and prohibiting creditors from making loans without verifying a borrower’s income – aim to strike a balance between protecting borrowers without causing lending to shrink. "We strive to protect borrowers from practices that are unfair or deceptive, but to do so without unintentionally causing responsible lending to shrink or unduly limiting consumer choice," said Fed Gov. Randall Kroszner, who is leading the central bank’s effort.
The proposals would prohibit lenders from granting mortgages to borrowers whose only means of repayment would be an increase in the value of the property. It also prohibits lenders from paying mortgage brokers fees for higher-rate loans.