By Claude R. Marx
Credit unions and other mortgage lenders would be required to highlight portions of a mortgage agreement that could be costly for consumers–such as adjustable rates and prepayment penalties–under regulations proposed by the Federal Reserve.
The proposed regulations, which are subject to public comments due at the end of November, would require the annual percentage rate to include most fees and settlement costs and mandate that lenders show how the consumer’s APR compares with the rate offered to borrowers with excellent credit. On adjustable-rate mortgages, lenders would be required to tell consumers how much their monthly payments might increase.
Lenders would be required to issue a one-page document, in question-and-answer format, outlining the risks.
“Consumers need the proper tools to determine whether a particular mortgage loan is appropriate for their circumstances,” said Federal Reserve Chairman Ben Bernanke. “It is often said that a home is a family’s most important asset, and it is the Federal Reserve’s responsibility to see that borrowers receive the information they need to protect that asset.”
Officials at CUNA and NAFCU said they are reviewing the proposals and would submit comment letters to the Fed. On similar issues in the past, the trades have focused on striking a balance between protecting consumers and not adding an undue regulatory burden to credit unions.
The Fed also proposed decreasing incentives for putting borrowers in more expensive loans. It would ban payments to a mortgage broker or a loan officer based on the loan’s interest rate or other terms. Also, brokers or loan officers would be banned from steering a consumer to loans not in their interest to increase the broker’s or officer’s compensation.
The proposal also revamps disclosure rules on home equity lines of credit.
Lenders will have to give borrowers a one-page information sheet issued by the Fed, and within 72 hours of receiving the application, the lender would have to provide an estimate of the costs that reflects “the specific terms of their credit plans.”