The U.S. Federal Reserve announced a plan Monday to end the lending practices that have plunged the U.S. housing market into crisis and boosted the number of foreclosures in the United States to record highs. “Rates of mortgage delinquencies and foreclosures have been increasing rapidly lately, imposing large costs on borrowers, their communities and the national economy,” said Fed Chairman Ben Bernanke. “Although the high rate of delinquency has a number of causes, it seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high-cost loans, that were inappropriate for or misled the borrower,” Bernanke added. The new rules will prevent lenders from making loans to borrowers with poor credit without ensuring that they have the income to pay the money back. The regulation will also require lenders to make sure risky borrowers set aside money to pay for taxes and insurance. Lenders will also no longer be able to penalize risky borrowers who pay off loans early, and will not be allowed to make loans where the value of the house is the sole repayment consideration. Most of the rules take effect on October 1, though some will be delayed until 2010. For all mortgages, the plan requires advertising to contain additional information about rates, monthly payments and other loan features and adds new rules to prevent deceptive language about loans.
