Regulators Set New Bad Credit Mortgage Standards

U.S. bank regulators issued new standards for bad credit home loan lending on Friday. They includes several new consumer protections.

Subprime borrowers should not be penalized for mortgage refinancing out of a loan before the interest rate resets to a higher level, according to a statement of principles issued by the regulators.

The guidelines also call for lenders to warn borrowers when a reset is coming and grant them at least 60 days to refinance.

“This guidance… underscores that the Federal Reserve and other banking regulators expect lenders to make sure subprime borrowers not only can afford their monthly payments while the introductory rate is in effect but also after the interest rate resets,” Federal Reserve Board Governor Randall Kroszner said in a statement.

Lenders should only offer mortgage loans to borrowers with little proof of assets and income if there is other evidence that they can repay, the statement says.

The guidance, which the lending industry takes as binding, was issued by the Fed, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the National Credit Union Administration.

SOURCE: Reuters