The Color of Money: Stay on Top of New Rules to Help Borrowers

By Michelle Singletary
Thursday, September 3, 2009

Over the next two years, consumers may feel like an overscheduled soccer mom when trying to keep track of the effective dates of new rules and regulations written to give them greater protections.

There are restrictions on credit card issuers, most of which become law in February. Starting next month, prohibitions on certain mortgage lending practices, as well as new disclosure requirements, will be in place.

I want to focus on the mortgage lending rules. It will no longer be enough to just inform consumers of their rights with densely written disclosure statements.

"Truth in lending is a great concept, but these new provisions are proactive," said Glenn Gimble, a senior policy analyst for the Federal Deposit Insurance Corp. "In some cases, borrowers don't have to worry about whether they are protected because the lender can't do certain things."

The rules include bans by the Federal Reserve on a variety of common and, in many cases, predatory industry practices involving loans made on or after Oct. 1. Among other things, the rules, which cover home mortgages, prohibit hyped appraisals, abusive fees and deceptive advertising. And subprime borrowers -- those with less-than-stellar credit histories -- are getting new protections.

Here are some of the new rules:

-- Mortgage lenders and brokers are barred from coercing or encouraging a real estate appraiser to misrepresent the value of a home.

You wouldn't think we needed this rule. But then again, we wouldn't be in the mortgage mess we're in if we didn't. So here we are, mandating that buyers get an accurate appraisal so they don't end up borrowing more money than a home is worth.

Some examples of actions that will no longer be tolerated include lenders implying that the current or future retention of an appraiser's services depends on the amount at which the appraiser values a consumer's principal dwelling. "We want the appraisal to truly reflect the value of the loan," Gimble said.

Lenders also can't tell an appraiser the minimum home value needed to approve a loan. However, lenders can ask an appraiser to consider additional information to come up with a fair appraisal.

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