Rules for Subprime Loans

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Feds Issue Final Subprime Rules
by Broderick Perkins

Federally regulated banks started the week with new rules governing how they write subprime loans.

Critics consider the rules too-little too-late because they don't apply to mortgage brokers and lenders that are not federally regulated. Also an estimated 2 million homeowners, many of them saddled with subprime loans they can't afford, are already in or destined for the foreclosure pipeline.

Effective immediately, the "Statement on Subprime Mortgage Lending" is the work of the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of Thrift Supervision and the National Credit Union Administration, federal monetary system regulators.

The new rules were spawned by waves of failing subprime mortgages.

Subprime loans are generally more expensive than prime loans, but they are intended for borrowers who pose a greater risk to lenders, typically because of the lack of credit or previous credit problems. Without the subprime segment, some borrowers would be locked out of the American Dream.

Unfortunately, in numerous documented class action suits, state-filed cases and other claims, too many subprime loans became predatory with exorbitantly high costs, penalties and other financially abusive features often directed at specific groups, including single women, minorities, older, low-income borrowers and others who can least afford the added cost.

Other studies revealed members of those same groups could qualify for prime loans but were steered toward subprime mortgages instead.

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Source:
http://realtytimes.com/rtpages/20070703_fedissue.htm

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