With a foreclosure rescue bill facing an uncertain fate in Congress, federal regulators said today they were preparing to adopt new rules designed to curb irresponsible mortgage lending and help some struggling homeowners refinance into more-affordable loans.
Among the measures expected to be approved next week by the Federal Reserve is a requirement that lenders document borrowers' incomes and verify that they could make the mortgage payments, including the higher payments that come when adjustable rate loans reset.
The new Fed rules were first announced in December, but have been modified in recent months in response to public comment. Fed officials declined to describe the changes, but the regulations are expected to limit bonuses paid to brokers for making subprime loans and restrict prepayment penalties for borrowers who want to refinance.
Also Tuesday, the Federal Housing Administration announced an expansion of the qualifications for borrowers seeking low-cost FHA-insured mortgages, making them more available in cases where a homeowner is behind on payments or owes more than the home's assessed value.
And in Oakland, Gov. Arnold Schwarzenegger signed into law a bill that represents the California Legislature's first stab at trying to stem the tide of foreclosures.
The bill, which took effect immediately, requires lenders to give homeowners an early warning that their mortgages are heading toward default. The measure also gives renters an extra 30 days' notice to find a new place to live if their landlord is losing the property.
"Foreclosures not only devastate families, they hurt neighborhoods and depress our economy and our budget," Schwarzenegger said.
More than a year into the mortgage crisis sparks by defaulting subprime mortgages, policy makers are still debating what to do about it.
The Senate is expected to pass a version of a foreclosure prevention bill later this week, but it differs in critical ways from an earlier version adopted by the House. It remains to be seen whether lawmakers can reconcile their differences, and even if they do, it is uncertain whether President Bush would veto it.
For the most part, the Bush administration has said it prefers regulatory measures to assist a housing correction instead of a large-scale foreclosure prevention bill.
