Industry NewsMortgage

Fed proposes new restrictions on subprime, alt-A loans

Sen. Dodd says legislation still needed to rein in abusive practices

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The Federal Reserve proposes imposing some restrictions that currently apply only to very costly loans -- including a ban on most prepayment penalties -- to subprime and some Alt-A loans. The product of a series of hearings, the proposed changes in how the Fed implements the Truth In Lending Act, or TILA, are intended to protect consumers from unfair or deceptive home mortgage lending and advertising practices. While the proposed regulations drew a mixed reaction from lenders, Connecticut Democrat Sen. Chris Dodd issued a statement slamming them as "deeply disappointing," and "a clear signal that legislation is necessary to help protect homeowners from abusive and predatory lending practices." The proposed amendments to Regulation Z, which spells out the Fed's implementation of TILA, would require lenders making "higher-priced" mortgage loans to: Verify a borrower's ability to repay a loan with an adjustable-rate mortgage after a payment reset, including property taxes, homeowners ...