Fed: Securing the Financial Futureby Tim Manni
In a speech today at the Forum on Mortgage Lending for Low and Moderate Income Households, Fed Chief Ben Bernanke announced the central bank will issue new rules next week designed to protect homebuyers from shady lending practices that contributed to the ongoing mortgage and credit crisis.
The new rules will prevent lenders from penalizing borrowers who pay off their loans early. Lenders will now be required to verify a borrower’s income before they begin to process their loan, and determine whether or not the borrower has funds available for taxes and insurance. Lastly, lenders must consider the borrower’s ability to pay back the loan through a source other than the home’s equity (value).
In order to promote economic stability and confidence through investors, Bernanke announced the Fed may continue to allow investment firms to borrow directly from the central bank. The Fed’s dedication to economic stability led to the orderly liquidation and ultimate sale of Bear Stearns earlier this year. Bernanke urged federal law makers and agencies to develop preventative systems and delegate new responsibilities in order sidestep future economic crises.
The creation of the Term Securities Lending Facility (TSLF) and the Primary Dealer Credit Facility (PDCF) – structures that allow investment firms to borrow directly from the Fed – have served to stabilize the market, assuring creditors that their lenders have sufficient access to capital in order to pay off their debt. The TSLF and the PDCF were both designed with a six month window of availability; both are due to expire in September. According to Bernanke, the extension of both facilities will serve to promote additional economic growth and confidence.