WASHINGTON—The Federal Reserve Board Tuesday proposed new protections for high-cost mortgage borrowers to avoid a repeat of the loose lending standards that have put many Americans at risk of losing their homes.
U.S. lenders would have to determine borrowers can afford a mortgage before making the loan, according to the Fed plan.
The proposed rules also would promise that borrowers will get details on their brokers' compensation and be billed monthly for annual charges like property tax and insurance.
The new proposed regulations are now open for 90 days of public comment before becoming final.
"Unfair and deceptive acts and practices have hurt not just borrowers and their families, but entire communities and, indeed, the economy as a whole," Fed Chairman Ben Bernanke said at a board meeting on the proposals.
The Fed offered sweeping new standards for new home lending as the nation faces a spike of foreclosures and failing home loans.
Critics in the U.S. Congress have said the Fed was too slow in curbing dangerous lending practices and timidly enforced the Home Ownership and Equity Protection Act, which gives the Fed broad power to stamp out dangerous loans.
In the summer of 2006, Fed staff held several forums across the country to hear suggestions for new mortgage rules and Tuesday's proposal is the culmination of such meetings.
The steps also include prohibiting advertisements for mortgages from loosely using terms like 'fixed-rate' loan.
The proposal specifically aims to protect borrowers with interest rates of more than 3 percent above Treasury securities of similar duration.
A 30-year Treasury bond is yielding around 4.55 percent, for instance, and so a "high-cost" 30-year mortgage loan would today have an interest rate of 7.55 percent or higher.
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