How The Fed “Protects” Senior Borrowers

by Peter G. Miller
July 17th, 2008

According to AARP Senior Vice President David Sloane, “predatory mortgage lending has cost too many older Americans the security that was the equity in their home. Caught in later life with unaffordable loans, their dreams for a safe and comfortable retirement turned into nightmares by foreclosure; they deserved better. With the rules adopted today, The Federal Reserve Board has acknowledged the role lax or nonexistent underwriting standards and abusive loan terms and conditions played in the foreclosure crisis among older homeowners.

“The Fed did the right thing to protect consumers by creating a marketplace for sustainable home ownership. Because of the new rules, older Americans who need to tap their equity to pay for home repairs, long-term care or other expenses will have protection from abusive lenders and predatory loans. After the worst mortgage marketplace since the Great Depression, the next wave of older Americans on fixed incomes who need to tap the equity in their homes can have real confidence that they will be protected from false advertising and high pressure marketing tactics.”


The Federal Reserve has used its power under the Home Ownership and Equity Protection Act (HOEPA) to introduce new — and astonishingly limited — protections for selected borrowers.

Other than a basic disclosure requirement, reverse mortgage borrowers are specifically excluded from the most important aspects of the alleged reforms.

Here’s some of what the new rules actually say:

___”Under the proposal, higher-priced mortgage loans would be defined as consumer credit transactions secured by the consumer’s principal dwelling for which the APR on the loan exceeds the yield on comparable Treasury securities by at least three percentage points for first-lien loans, or five percentage points for subordinate-lien loans. The proposed definition would include home purchase loans, refinancings, and home equity loans. The definition would exclude home equity lines of credit (“HELOCs”). There would also be exclusions for reverse mortgages, construction-only loans, and bridge loans.”

___”The Board proposed to apply the protections of § 226.35 to first-lien, as well as subordinate-lien, closed-end mortgage loans secured by the consumer’s principal dwelling. This would include home purchase loans, refinancings, and home equity loans. The proposed definition would not cover loans that do not have primarily a consumer purpose, such as loans for real estate investment. The proposed definition also would not cover HELOCs, reverse mortgages, construction-only loans, or bridge loans. In these respects, the rule is adopted as proposed.

___”Pursuant to its authority under TILA Section 105(a), 15 U.S.C. 1604(a), the Board proposed to require creditors to give consumers transaction-specific, early mortgage loan disclosures for closed-end loans secured by a consumer’s principal dwelling, including refinancings, home equity loans (other than HELOCs) and reverse mortgages. The proposed rule would require that creditors deliver this disclosure not later than three business days after application and before a consumer pays a fee to any person, other than a fee for obtaining the consumer’s credit history. The Board also proposed corresponding changes to the staff commentary and certain other conforming amendments to Regulation Z. Providing the mortgage loan disclosure early for all mortgage transactions, and before consumers have paid significant fees, would help consumers make informed use of credit and better enable them to shop among available credit alternatives.”

___”(3) Notwithstanding paragraph (a)(1) of this section, the term “higher-priced mortgage loan” does not include a transaction to finance the initial construction of a dwelling, a temporary or “bridge” loan with a term of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months, a reverse-mortgage transaction subject to § 226.33, or a home equity line of credit subject to § 226.5b.”

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One Response to “How The Fed “Protects” Senior Borrowers”

  1. Alban Says:

    A SUPPORTED BY THE DEVELOPER TOOLS? It was interesting. You seem very knowledgeable in ypour field.