Posted on Wednesday, January 19, 2011
Consumer advocacy groups have been joined by federal lawmakers in their campaign against a mortgage lending rule change proposed by the Federal Reserve.
The Fed has recommended revising a stipulation that allows homeowners to stop a foreclosure on the grounds that the lender violated the disclosure requirements outlined in the Truth-in-Lending Act (TILA) for certain home-secured transactions, including closed-end mortgages and home equity lines of credit.
Currently, a borrower has up to three years to convince the courts to cancel, or rescind, a mortgage loan if they can prove the lender did not properly disclose the terms of the loan at the time it was signed. It’s a regulation that has been in place since TILA was enacted 42 years ago.
The proposed rule would reverse the traditional understanding of TILA’s right of rescission by requiring a homeowner to pay off the entire mortgage amount before a creditor is required to cancel its security interest in the home.
With consumers’ rights at the forefront of regulatory reform and the industry still dealing with the consequences of predatory lending practices during the
subprime boom, the Fed’s move to withdraw the existing rescission stipulation from the TILA rule is attracting criticism from many corners.
Sen. Sherrod Brown (D-Ohio) was joined by five other senators, including the outgoing and incoming chairmen of the Senate Banking Committee, in sending a letter to the Federal Reserve. In it, they said “In this time of record foreclosures and reports of systemic problems with the operations of the largest mortgage servicers, the proposed revisions are unfortunate and unnecessary.”
The letter continued, “The mortgage market needs greater oversight and accountability to restore borrower confidence lost during the mortgage crisis. The proposed rules would undermine this goal. The board’s proposal would tilt the balance in favor of creditors who have failed to comply with TILA’s disclosure requirements.”
The senators stressed that “requiring a borrower to repay the entire mortgage would render this important borrower right inaccessible to all but the wealthiest homeowners.”
The lawmakers’ petition follows a similar letter sent to the Fed by a group of more than 200 attorneys who represent homeowners in foreclosure cases, consumer rights organizations, and legal service providers.
Their letter read, “At the depths of the worst foreclosure crisis since the Great Depression, we are surprised that the Federal Reserve board has proposed rules that would eviscerate the primary protection homeowners currently have to escape abusive loans and avoid foreclosure: the extended right of rescission.”
The Federal Reserve has not yet indicated whether it plans to move forward with implementing the rule change, or leave it to the newly formed Consumer Financial Protection Bureau. Jurisdiction over TILA requirements will transfer to the bureau in July.
By: Carrie Bay, DS News