The Federal Home Loan Bank Board has rescinded a decision it made last May preventing federally chartered savings and loan associations from refusing to accept overdue mortgage payments that do not include late charges.
The bank board rescinded its decision because of S&L industry objections, but at the same time, the board has refused to back down on its ruling that late charges may not be added to the loan's principal balance.
Both practices have long been common in the mortgage lending field. The FHLBB issued its May interpretation of its regulations in response to several requests from S&Ls could no longer use the threat of not accepting principal and interest payments as a way to force customers to pay late charges even when those charges were in dispute. It meant also that S&Ls could no longer make a little extra profit by adding charges to the loan's balance.
According to the FHLBBs interpretation, if late charges were not paid by the time the loan matured, the association would have had to take the borrower to court to recover them. Or it could have recouped them if the house were sold before the mortgage was paid off.
The ruling took the industry unaware. But the U.S. League of Savings Associations soon sent a letter to the S&L regulator arguing that members would no longer have any leverage against late payers. The bank board consequently rescinded its decision.
A FHLBB spokeswoman called the original decision an error that was "not in the best interest of everyone."