The Federal Reserve Board on Tuesday requested public comment on a proposed rule under Regulation Z that would require creditors to determine a consumer's ability to repay a mortgage before making the loan and would establish minimum mortgage underwriting standards.
The proposal would apply to all consumer mortgages, except home equity lines of credit, timeshare plans, reverse mortgages, or temporary loans.
Consistent with the act, the proposal would provide the following four options for complying with the ability-to-repay requirement:
A creditor must meet the general ability-to-repay standard by considering and verifying specified underwriting factors, such as the consumer's income or assets.
A creditor must make a "qualified mortgage," which provides the creditor with special protection from liability provided the loan does not have certain features, such as negative amortization; the fees are within specified limits; and the creditor underwrites the mortgage payment using the maximum interest rate in the first five years. The Board is soliciting comments on two alternative approaches for defining a "qualified mortgage."
A creditor operating predominantly in rural or underserved areas can make a balloon-payment qualified mortgage.
A creditor can refinance a "non-standard mortgage" with risky features into a more stable "standard mortgage" with a lower monthly payment.
The Board is soliciting comment on the proposed rule until July 22, 2011.
Source: The Board of Governors Federal Reserve
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