There are two significant changes in the current FRB proposal. Yet the FRB has the authority to outlaw practices that are particularly abusive and deceptive. The FRB should go further than it proposes, and outlaw outright the sale of credit life insurance and other similar credit products, as well as mandatory arbitration provisions which deny equal access to justice to low income and minority borrowers.
Prepayment penalties are a rarity in the prime loan market.
Often, distressed homeowners overwhelmed by bad loan debt will seek to refinance themselves out of trouble. Yet frequently the borrower winds up in a worse position, as refinance loans may carry high fees and interest rates. Frequent refinancings, or flipping of loans, is a common feature of predatory lending. Lenders can structure loans that require a large balloon payment after the fifth year. The FRB is NOT proposing any substantive change here, even though a comprehensive report by the Treasury Department and the Department of Housing and Urban Development called for the FRB to extend the period during which a lender could not assess a balloon payment to 15 years.