Feds Consider Plan To Tighten Lending Practices

The subprime lending mess has led many to ponder preventative measures.  The Federal Reserve Bank, which has authority over all banking and lending practices is considering bold new measures to curb the shady lending practices that contributed to today’s burgeoning foreclosures.  According to the San Jose Mercury News, this plan would prevent issues in the future by:

• Restricting lenders from penalizing certain subprime borrowers – those with tarnished credit or low incomes – who pay off their loans early. The restriction would apply to loans that meet certain conditions, including that the penalty expire at least 60 days before any possible payment increase.

• Forcing lenders to make sure that subprime borrowers set aside money to pay for taxes and insurance.

• Barring lenders from making loans when they don’t have proof, or verification, of a borrower’s income.

• Prohibiting lenders from engaging in a pattern or practice of lending without considering a borrower’s ability to repay a home loan from sources other than the home’s value.

Also under consideration is a plan to require lenders to provide disclosures to borrowers early in the shopping process, without charging any fees.  Disceptive advertising practices would also be banned under this plan.

Although these tighter restrictions would make it harder for many to get loans – the pain of not getting a loan is certainly less than the pain involved in losing a home!