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July 5, 2008 7:02:29 AM CDT

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Fed Plans to Tighten Mortgage Lending Rules

Posted Dec 18, 07 8:49 AM CST in Business    Most Covered

(Newser) – Stricter rules will face mortgage lenders if a Federal Reserve proposal unveiled today moves forward. The Fed wants to prohibit or limit prepayment penalties, force lenders to make sure borrowers set aside money for taxes and insurance, require lenders to verify income, and prohibit lenders from giving borrowers unaffordable loans, the AP reports.

The Fed also will try to aid consumers by simplifying financial disclosures and cracking down on mortgage advertising. Although the rules likely will cover loans made by all lenders, it’s specifically aimed at protecting subprime borrowers. Nearly 5% of subprime ARMs in the third quarter were in foreclosure, with 18.81% past due. The proposals must be aired for public comment before becoming law.

Source Associated Press

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Map shows percentage of subprime ARMS loans in foreclosure by state; 2c x 4 inches; 96.3 mm x 101.6 mm   (Associated Press)
Federal Reserve Board Chairman Ben Bernanke testifies on Capitol Hill, in Washington, in this Jan. 18, 2007 file photo, before the Senate Budget Committee. (AP Photo/Manuel Balce Ceneta, file)   (Associated Press)
A bidder, who declined to give his name, watches the action as Travis Toth, an auctioneer of trustee sales for Fidelity National, reflected in the man's sunglasses, read descriptions of foreclosed properties...   (Associated Press)
A foreclosure sign tops a sale sign outside an existing home on the market in northwest Denver in this Aug. 29, 2007 file photo. The Bush administration has hammered out an agreement with industry to...   (Associated Press)
A sign is seen inside the interior of an unoccupied single family home offered in a lender foreclosure home auction in Burbank, Calif. in this Oct. 11, 2007 file photo. (AP Photo/Damian Dovarganes, file)   (Associated Press)
Graphic shows state-by-state foreclosure rates; two sizes; 1c x 3 1/4 inches; 46.5 mm x 82.6 mm; 2c x 3 1/2 inches; 96.3 mm x 88.9 mm   (Associated Press)
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