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4 Main Steps Outlined for lenders |
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Written by Becky
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Monday, 17 March 2008 |
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The Chairman if the Federal Reserve, Ben Bernanke, has made a basic guide of ideas propsed by the bank to help prevent problems with subprime loans. Bernanke has said that, "The Federal Reserve is strongly committed to fully employing our authority, expertise, and resources to help alleviate [borrowers'] distress,". To date, they have outlined 4 basic steps to protect borrowers from the problems of suprime loans. Prohibit lenders from issuing loans that are or will be impossible for the borrowers to repay. This is to correct that so called teaser problem, where loans were initially issued with a low ¨teaser¨ rate but then the rates later reset to skyrocketing amounts, resulting in borrower foreclosure. Lenders must check out the income and assets of the borrower. In order to make sure that a loan can successfully be repaid, the lender must insure that the borrower has good credit and a stable/reasonable income. Make escrow accounts for higher-prices loans a requirement. For a lender issuing a loan to a borrower who is not well educated on loan repayment, it is suggested that all high priced loans have a separate account for hazard insurance and real estate taxes. Eliminate unfair repayment penalties, such as loan-flipping. Some lenders did or are resulting in unfair practices that force borrowers to refinance at a high rate, that is out of their level of afford ability.
President Bush has also been addressing these types of solutions with Congress and lawmakers, asking that they modernize the Federal Housing Administration, reform Fannie Mae and Freddie Mac, and work on extending tax cuts made on capital gaims. |
