The Federal Reserve Board has decided not to require home sellers to make it clear to buyers that hidden costs of "below-market" financing could add to the price of a home.
The Fed staff had proposed a regulation, which would have applied to purchases of automobiles as well as homes and other items bought on credit.
The regulation was fought vigorously by lenders, who argued that it would increase their costs without providing much more information to consumers. Most of the reserve board's members agreed with that contention, although the Fed had conceded earlier that, under the current law, statements of financing costs can be misleading.
The regulation would have put tighter reins on so-called "creative financing," which is particularly popular in the housing industry and which is being used to stoke sales in these time of discouragingly high interest rates.
The proposal would have required sellers to disclose that the payment by a builder or manufacturer to a lender of "seller's points" to provide cut-rate financing might affect the purchase price of the property or product.
Such information is not now included in the standard truth-in-lending form, which contains a statement of the annual percentage rate and the amount of the total finance charges, but can underestimate both amounts by excluding the effect on the price of the seller's "buydown" used to reduce the interest rate on the loan.
For example, a home may be offered at a below-market rate of just over 12 percent, made possible by the payment by the builder of $10,000 to the lending institution to cover the reduced cost of interest in the first few years of the mortgage.
That $10,000, however, then would be tacked on to the home's purchase price and paid out over the life of the mortgage, thus increasing the actual cost.
Not all cut-rate financing plans include such hidden costs. Sometimes builders absorb the cost of reducing the mortgage rate by adding the charge to the selling price.
Proponents of the regulation had argued that, without the disclosure of the potentially higher price, consumers might reject offers of seemingly less favorable terms that actually were more economical once the hidden costs were included.