Source: National Mortgage Professional Magazine
In response to proposed changes to home lending rules from the Federal Reserve Board (FRB) that not only exceed its authority, but could actually encourage predatory lending targeted at the elderly, a group of consumer advocates has urged the FRB to withdraw its proposed regulations under the Truth-in-Lending Act (TILA). The Fed’s proposals involving reverse mortgages and the right to cancel illegal loans would be particularly harmful to senior citizens. The group of consumer advocates consists of the Center for Responsible Lending (CRL), Americans for Financial Reform, California Reinvestment Coalition (CRC), Consumer Action, Consumers Union, National Association of Consumer Advocates (NACA), National Community Reinvestment Coalition (NCRC), National Fair Housing Alliance (NFHA) and the Neighborhood Economic Development Advocacy Project (NEDAP).
The group feels the FRB's proposal on reverse mortgages can pose major risks for elderly homeowners. In comments submitted to the Board, the groups detail how the Board’s proposal would permit several negative outcomes:
?Bundling harmful and unnecessary products with reverse mortgages. When seniors get a reverse mortgage, the lender would be allowed to also sell them harmful or unnecessary financial products after a 10-day waiting period.
?False advertising. Would allow advertisers to make false statements, such as “you can never lose your home,” as long as they present additional information.
?Gouging homeowners unfairly. Would open the door for a harmful new type of reverse mortgage where borrowers could owe much more than the home is worth. As it stands now, borrowers cannot owe more than the home is worth if they pay off the reverse mortgage by selling the home.
?Undermining the new Consumer Financial Protection Bureau (CFPB). Clashes with specific requirements in the financial reform bill passed last summer, which calls on the CFPB to study reverse mortgages and issue regulations based on its findings.
Another major issue involves the “right of rescission,” which provides homeowners up to three years to refinance or restructure a mortgage if a lender made the loan without providing timely and accurate disclosures about the loan’s terms and conditions. Under the new proposal, the definition of "accurate" disclosures would be relaxed, allowing, for example, a lender to tell a homeowner that the monthly payment was $100 less than it actually was. The groups urge the Fed to preserve this right of rescission, which has been a major tool in combating predatory lending.
The groups, which also included Consumers Union, Consumer Action, the Neighborhood Economic Development Advocacy Project and the National Community Reinvestment Coalition, say that although some parts of the Fed’s proposal are positive, on balance they believe that “some of the proposals are extremely damaging to consumers and to preservation of homeownership, and are beyond the Board’s authority.”