Anticipated HOEPA rules revealed

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 payments.

"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 Mortgage Bankers 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 homeownership."

For a full summary of the HOEPA rules, visit www.namb.org.