Fed outlines mortgage safeguards

WASHINGTON, Dec. 18 (UPI) -- The U.S. Federal Reserve Board proposed Tuesday changes that would protect consumers from "unscrupulous" mortgage lending and advertising practices.

If adopted, the rule would restrict some practices and require certain disclosures to be provided earlier in the mortgage application process, the Fed said in a news release.

"Our goal is to promote responsible mortgage lending, for the benefit of individual consumers and the economy," Federal Reserve Chairman Ben S. Bernanke said. "We want consumers to make decisions about home mortgage options confidently, with assurance that unscrupulous home mortgage practices will not be tolerated."

The four lending areas that would be governed by the proposal include:

-- Prohibiting creditors from extending credit without considering the borrowers' ability to repay.

-- Requiring creditors to to verify borrowers' income and assets.

-- Allowing prepayment penalties only under certain conditions.

-- Requiring creditors to set up escrow accounts for taxes and insurance.

The rule includes in its definition of a "higher-priced mortgage loan" the subprime market but generally excludes loans in the prime market, the Fed said.

The proposed rule is available in the Federal Register for public comment for 90 days.