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.
-- Loan servicers, the companies that collect mortgage payments, will be prohibited from failing to credit someone's loan payment on the date it is received. Servicers also can't snatch a late-payment fee from a borrower's monthly loan payment without first giving notice, providing borrowers a chance to make a full loan payment to avoid being hit with a dizzying array of fees.
-- Lenders working with "high-priced" mortgages -- a new category of loan -- have to consider an applicant's ability to repay the loan. Imagine that!
For the purposes of the regulation, a higher-priced mortgage loan is one with an interest rate that is 1.5 percentage points above prime rate for first liens, 3.5 percentage points above prime rate for junior liens.
-- Lenders can no longer take just a borrower's word that "I got this." Lenders of higher-priced mortgages will be required to verify a loan applicant's income and assets using reliable third-party documents.
The Fed's rules will also ban several advertising practices that the agency found to be deceptive or misleading.
I love the new advertising rules. They're just what borrowers need. They will force lenders to be upfront about so-called "fixed" rates. For example, one rule prohibits any advertisement from indicating that a rate or payment is "fixed" when in fact it can change. Perhaps if this had been required years ago, many borrowers wouldn't have taken out exotic loans with escalating interest rates.
As of Oct. 1, all interest rates or payment amounts have to be prominently placed in close proximity to any low promotional or "teaser" rate or payment.
When it comes to home equity lines of credit, if a large, lump-sum "balloon payment" is due at the end of the loan term, this fact has to be disclosed with equal prominence and in close proximity to any minimum-payment information.
While the onus is on lenders to behave and follow the rules, it would be smart for you to read up on the new protections. For more information, read the FDIC's consumer newsletter at http://www.fdic.gov/consumernews. Click on the link for summer 2009. You can order free paper copies of the newsletter online or call the Federal Citizen Information Center toll-free at 888-878-3256. Ask for Department D96.
It's unfortunate that these new regulations come too late to protect the millions of naive or irresponsible borrowers who bought homes that they now can barely afford or have lost to foreclosure or a short sale (where you are forced to sell your home for less than what you owe to the lender).
But let's not dwell on the past. We've got a calendar to fill.
-- By mail: Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.
-- By e-mail: email@example.com.
Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.