New mortgage underwriting rules will be tough to enforce

Part 1: Can Fed curb abusive lending?

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(This is Part 1 of a three-part series.) On Dec. 18 of last year, the Federal Reserve Board released its long-awaited proposals for curbing abuses in the home mortgage market. In this set of three articles, I examine board proposals to curb lax underwriting rules, unfair practices by mortgage brokers, and abusive practices by loan servicing agents. The proposals were long delayed, probably because home loan reform is not a board priority. Monetary policy is its first priority; bank regulation comes second; and consumer protection is a poor third. The delay is particularly problematic in connection with its proposals for changing underwriting rules, the subject of this article. Underwriting rules determine whether a particular borrower is eligible for a particular loan. The major rules are the minimum down payment, minimum credit score, maximum ratio of housing expense to income, and required mode of documenting income and assets. On conventional loans (those not FHA or V...