Guide Note
On July 14, 2008, the Federal Reserve unanimously approved a series of new mortgage rules. The new rules address consumer concerns about loopholes in the lending system that allowed for ethically questionable practices. The new rules apply to all mortgage lenders.1
Laws become mandatory for all lenders, with an exception for escrow law, on October 1, 2009. The escrow law component becomes effective in 2010.
Fast Facts
- New Federal Reserve rules are an amendment to Regulation Z, Truth in Lending Act
- Bans mortgage lenders from making a loan without examining the borrower's ability to repay2
- Bans prepayment penalties if the loan can change in the first four years3
- Lenders must establish escrow accounts for sub-prime borrowers4
- Ban on deceptive or misleading advertising practices
New Federal Reserve Mortgage Rules Quotes4
"Rates of mortgage delinquencies and foreclosures have been increasing rapidly lately, imposing large costs on borrowers, their communities and the national economy."—Ben S. Bernanke, Federal Reserve Chairman
"Although the high rate of delinquency has a number of causes, it seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high-cost loans, that were inappropriate for or misled the borrower."—Ben S. Bernanke, Federal Reserve
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