New Mortgage Disclosure Rules

Fed Pushes New Curbs on Lending Practices- Mortgage Brokers Would See Fees Cut

The Federal Reserve on Thursday unveiled a proposal to curb abusive lending practices by reining in compensation for mortgage brokers and by helping borrowers better understand the terms of loans available to them. The toughest part of the Fed's plan deals with compensation for mortgage brokers. These brokers can be rewarded with extra fees for placing borrowers in higher-rate loans. The proposal works to fix this by barring lenders from offering extra compensation based on the terms of the loan, which includes the rate. Consumer advocates have blamed incentive based pay for helping cause the real estate meltdown.

The broker industry has managed to block similar efforts in the past. Brokers are not driven by these extra fees but by what is best for the consumer.  It is also said that higher rate loans are more suitable if a lender will accept higher debt loads or lower credit score.

The proposal aims to help people better understand the mortgages available to them. Lenders will have to provide consumers with a one-page list of key questions to ask when a loan is offered to them. After applying for the loan people will get streamlined information about their mortgage and any risky features. Lenders will have to show how the rate compares with the rates offered to borrowers with great credit.

The plan also addresses borrowers by giving them added protections for giving home-equity lines of credit since home prices have dropped.