(Housing Wire) As expected, the Federal Reserve on Tuesday proposed a new set of regulations that would govern what it called “higher-priced mortgage loans,” including subprime lending. HW had provided advance coverage of the announcement on Monday, and the formal announcement contained few surprises.
Perhaps the biggest (and only real) surprise was proposed regulations regarding the use of yield spread premiums. Lenders would be prohibited from compensating mortgage brokers via YSP unless the broker previously entered into a written agreement with a borrower disclosing total compensation.
Under the Fed’s proposal, a consumer’s written agreement with the broker must occur before the consumer applies for a loan or pays any application fees.
The rest of the proposed subprime regulations were largely in line with expecations for the Fed proposal:
- Approval must consider ability to repay at the fully-indexed rate
- Verification of income and assets required
- Limits on prepayment penalties, cutting such penalties off 60 days prior to any rate reset
- Mandatory escrowing of taxes and insurance
Click here to read detailed highlights of the Fed’s proposed changes.