Fed to protect consumers from abusive mortgages

By Tami Luhby, senior writer


NEW YORK (CNNMoney.com) -- The Federal Reserve Board issued new rules Monday to protect consumers from abusive mortgage lending practices.

The new regulations, which take effect April 1, will ban lenders from paying mortgage originators more for putting borrowers in more expensive loans. Consumer advocates have long decried the incentive, known as "yield spread premium," saying it steers homebuyers into loans with higher interest rates.

Under the new rules, lenders will also have to disclose how borrowers' payments could change over time, including the maximum amount that could be owed under an adjustable rate loan. Homebuyers will also have to be told about any balloon payments due at the end of the loan's term.

The Federal Reserve has been tightening mortgage lending regulations in the wake of the housing bust. The Wall Street reform act recently passed by Congress includes similar provisions, but also addresses practices not covered by the board's new regulations. The Fed plans to implement the act's provisions in the future. To top of page

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