Devoted to interest rates, loans, and lending institutions

The Federal Reserve wants changes made to current mortgage industry regulations. After looking over the proposed regulations, I am forced to conclude that the mortgage industry does need this regulation, since many -- if not all -- of the propsed regulations are, in fact, common sense.

That's right. Many of the mortgage industry regulations are things that the industry should have been doing in the first place. If mortgage lenders and brokers had been following these guidelines voluntarily, we wouldn't be in this mess right now. 

Here are the basics of what the Fed, under the direction of chairt Ben Bernanke, is proposing for the mortgage industry:

• When making mortgage loans, lenders would be required to verify a borrower's income.
• Mortgage lenders would have to amend their practices so that they aren't exhibiting a "pattern or practice" of approving mortgage loans that borrowers can't, in fact, afford.
• Limits must be placed on penalties charged against borrowers for prepayment.
• Mortgage lenders need to put insurance and taxes in escrow accounts.

In addition to these requirements, CNN Money reports that mortgage brokers wouldn't get the same kickbacks for encouraging (read: pushing on) borrowers home mortgage loans with higher prices:

Also, for all loans regardless of rate, the regulator would ban the practice of allowing banks to pay brokers for steering homeowners into higher-priced loans, unless that compensation was disclosed in advance. And it would prohibit brokers from coercing appraisers into misstating a home's value.

Yes, it appears that part of this problem is that some mortgage brokers were overstating home's values in order to convince borrowers that they were getting a good deal. Others were pushing products that may not have been best for the borrower by concealing conflicts of interest and even concealing information that might have warned the borrower off a particular loan.

It's hard to be an informed consumer and make good decisions when you are given faulty information and don't know where to find the good information. Perhaps these Fed regulations will change that.

What do you think of the proposed Fed regulations on the mortgage industry?

image credit: US government