Proposed changes to home lending rules from the Federal Reserve Board not only exceed its authority, but could actually encourage predatory lending targeted at senior citizens, according to a coalition of consumer groups.
In response to the "flawed proposals", the Center for Responsible Lending, the National Consumer Law Center (on behalf of its low-income clients), the National Association of Consumer Advocates, the California Reinvestment Coalition, the National Fair Housing Alliance and others have urged the Federal Reserve Board to withdraw its proposed regulations under the Truth in Lending Act. The Fed’s proposals involving reverse mortgages and the right to cancel illegal loans "would be particularly harmful to senior citizens," the groups contend.
Reverse mortgage concerns
The Fed has issued a wide-ranging proposal on reverse mortgages -- a loan product that represents a growing market for lenders, but which the coalition believes can pose major risks for older 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.
Right of rescission
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 “some of the proposals are extremely damaging to consumers and to preservation of homeownership, and are beyond the Board’s authority.”
