All of this chatter from Washington about what the government is going to do to help homeowners in this epic housing crisis. We will be posting to our blog every time there is anything new that will be of value to our students. I have yet to see any plan proposed that is designed to truly help more than a handful of borrowers. A vast majority of homeowners will see no benefit of any of these ‘plans’.
Expect more
‘plans’ to be announced as we get closer to the Presidential election.
It seems that having a ‘Save The Homeowner’ plan is the latest must
have for anyone running for office.

Here is the latest….
The Federal Reserve on Tuesday is set to consider a plan that would
mark the central bank’s biggest regulatory response to date of the
country’s mortgage turmoil.

The staff proposal under review would curb the types of subprime
products lenders can offer, prohibit certain misleading disclosures,
and limit the compensation of mortgage brokers. In other words, the
mortgage brokers may be facing yet another challenge. We are not
proponents of the whole ‘lynch the loan officer’ mantra that is so
popular in the media. Of course there were a few bad apples who did
take advantage of their borrowers and they should be dealt with.
However, people have to take responsibility for their own actions.

Here are the proposed ‘New Rules’. The one main thought that you will
have when you read this list of ‘New Rules’ is…when were these NOT
rules.
• Prohibit a lender from engaging in a pattern or practice of lending
without considering borrowers’ ability to repay the loans from sources
other than the home’s value.
• Prohibit a lender from making a loan by relying on income or assets
that it does not verify.
• Restrict prepayment penalties only to loans that meet certain
conditions, including the condition that the penalty expire at least
sixty days before any possible payment increase.
• Require that the lender establish an escrow account for the payment
of property taxes and homeowners’ insurance. The lender may only offer
the borrower the opportunity to opt out of the escrow account after
one year.
More highlights and quotes from their speech.

It also would ban brokers or creditors from coercing or influencing
home appraisers to misrepresent the value of a home and would prohibit
certain practices from loan servicers, such as failing to promptly
credit payments to customers’ accounts.

“Unfair and deceptive acts and practices hurt not just borrowers and
their families, but entire communities, and, indeed, the economy as a
whole,” said Fed Chairman Ben Bernanke, according to prepared remarks.
“They have no place in our mortgage system.”

The staff’s proposal is aimed at rooting out many of the lending
practices that proliferated during the recent housing and credit boom.
Many of these practices, such as certain prepayment penalties and
low-documentation loans, are attributed with exacerbating the current
mortgage crisis.

The proposal would apply to all lenders — state and federally
licensed — touching every corner of the mortgage market. The Fed has
never used this authority this broadly before, and it has been under
constant criticism this year for not acting more aggressively as
lending standards deteriorated in recent years.

“As the mortgage market has become more segmented and as risk has
become more dispersed, market discipline has in some cases broken down
and the incentives to follow prudent lending procedures have, at
times, eroded,” Mr. Bernanke said.

The Fed staff proposal targets high-cost loans secured by a consumer’s
principal dwelling. The proposal said these loans shouldn’t be made
without regard to a borrower’s ability to repay, without verifying the
income and assets of the borrowers, with a prepayment penalty in
certain circumstances, and without establishing that borrowers pay
insurance and taxes on the property

The staff proposal would also “generally” ban lenders from “directly
or indirectly paying mortgage brokers in connection with consumer
credit transactions secured by a consumer’s principal dwelling, unless
the mortgage broker enters into a written agreement with the consumer”
and provides certain disclosures. Creditors wouldn’t be banned from
paying brokers if the compensation isn’t determined by the borrower’s
interest rate.

Fed staff also are proposing to ban lenders from structuring
traditionally “closed-end” mortgage products as “open-ended.” Fed
staff believes this is necessary to prevent lenders from trying to
evade the new protections.

The new proposal would apply to loans secured by the consumer’s
principal dwelling where the annual percentage rate exceeds the yield
on comparable Treasury securities by at least three percentage points
on first-lien loans, or five percentage points for second-lien loans.

Because the staff recommends the policy be applied to loans where the
principal dwelling is the primary collateral, it would not apply to
speculators or investors who do not live in the homes they purchase.
From an investors stand point…this is a good thing.

If the Fed’s five governors decide to issue the proposal, the public
would likely have at least two months to comment on it before the Fed
ultimately makes it a final rule. The rule would only apply to loans
going forward, not the subprime adjustable-rate loans that became
extremely popular during the recent housing boom. In other words,
those home owners who are already in the deep end…are being left to
sink to the bottom.

The staff proposal would require that prepayment penalties on
high-cost loans expire at least 60 days before an adjustable-rate loan
resets from its starter rate into a higher rate. Many prepayment
penalties on subprime adjustable-rate mortgages ran right up to or
beyond the reset date. This often happened because the loan officers
didn’t explain what the PP was and were often paid an extra
commission. However, in some cases the actual investor may of made the
prepayment penalty a requirement of the loan.

Though the Fed’s proposal would apply to all subprime lenders, the
central bank would not be charged with enforcing its proposal for
every company. But a final rule would make it much easier for state
attorneys general, the Federal Trade Commission, and private lawsuits
to go after those who violate the new policies.

“These proposals alone will not end all of the problems in the
mortgage market,” said Fed governor Randall Kroszner, according to
prepared remarks. “We do believe, however, that the carefully
considered rules that we are proposing today will go far toward
ensuring reasonable credit options for consumers while stemming the
problems we have seen.”

The plan would ban seven marketing practices, including marketing
loans as having “fixed rates” when the fixed rate is for only a
limited period of time. Lenders would also be banned from “advertising
claims of debt elimination if the product would merely replace one
debt obligation with another,” according to the proposal. In case you
didn’t know it many of the companies that market themselves as debt
consolidation firms are actually mortgage companies.