[JURIST] The Federal Reserve Board on Monday approved new rules for home mortgage loans [draft regulations, PDF; press release] designed to reduce unfair lending practices and increase consumer protection. The new rule amends the Truth in Lending Act [text] to include prohibitions against granting loans without a verification of the borrower's ability to repay, bans on some debt prepayment penalties and requirements that lenders sometimes establish escrow accounts and homeowner's insurance. Lenders will also be prohibited from coercing appraisers to falsely represent a home's value, using unfair fee structures and misrepresenting or failing to provide an account of total loan costs. Chairman of the Federal Reserve Ben Bernanke said [transcript] at the board meeting:
Besides offering broader protection for consumers, a uniform set of rules will level the playing field for lenders and increase competition in the mortgage market, to the ultimate benefit of borrowers. We will work collaboratively with our fellow regulators, both state and federal, to see that the rules are consistently applied and vigorously enforced.Most of the rules will go into effect on Oct. 1, 2009. Bloomberg has more. AFP has additional coverage.
Last month, the Federal Bureau of Investigation (FBI) [official website] announced that more than 400 people had been indicted [press release; JURIST report] in connection with what has been termed the US "sub-prime mortgage collapse." Most of the indictments involved fraud related to individual mortgages, with the FBI focusing on lending fraud, foreclosure rescue scams and mortgage-related bankruptcy schemes, which account for more than $1 billion in losses. The same day, the US Attorney's Office for the Eastern District of New York [official website] also announced the indictments [text, PDF; press release] of two senior hedge fund managers at Bear Stearns [corporate website] for allegedly misleading investors even after they knew their mortgage-related funds were at serious risk of collapse.