Anticipated HOEPA rules revealedMortgagePress.comsub-prime, alternative-A mortgages, prepayment penalties, yield spread premiums
The Federal Reserve
Board is proposing a set of rules intended to clean up
sub-prime lending practices and address unfair and deceptive
practices associated with servicing, Mortgage Broker fees and
appraisals. On sub-prime and higher-priced alternative-A mortgages,
the Homeownership and Equity Protection Act (HOEPA) proposal would
create an ability to repay standard, require lenders to verify
income and assets to curb stated-income lending, mandate escrow
accounts for at least 12 months, and require prepayment penalties
to expire 60 days before the first monthly increase in
"The regulations complement recent efforts on the part of
Congress and the administration to help struggling homebuyers,"
said House Committee on Financial Services Ranking Member Spencer
Bachus. "Let me commend the Fed for finally taking this step
forward. Benjamin Franklin told us, 'An ounce of prevention is
worth a pound of cure.' Our free market system is best served when
reasonable rules are put in place to protect consumers in advance,
as opposed to engaging in after-the-fact bailouts once the damage
has already occurred."
The proposal also requires brokers to disclose, upfront, the
dollar amount of their fees, including yield spread premiums
(YSPs), in a written agreement with the borrower.
"Well conceived disclosures empower consumers to make the best
choices and foster market competition to provide consumers the best
products at the best prices," said Kieran Quinn, CMB, chair of the
Association. "Initially, we are concerned; however, that some
of the restrictions in the proposals may unnecessarily limit the
credit options available to borrowers who should otherwise qualify
For a full summary of the HOEPA rules, visit www.namb.org.