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The Federal Reserve is moving ahead with plans to change the right-of-rescission rule as part of the Truth in Lending Act (TILA) despite intense outcry from consumer advocates, civil rights groups, and top members of the Senate Banking Committee.
Revised TILA will require borrowers to repay a mortgage in full before a loan is rescinded. Consumer groups say the measure is designed to prevent homeowners from using the right-of-rescission protection as a defense against improper foreclosure.
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The Fed’s proposal is designed to ward off frivolous lawsuits that will delay foreclosures and have an adverse impact on economic recovery by ensuring “a clearer and more equitable process for resolving rescission claims” that closely mirrors present court requirements. The central bank wants to lift what it views as undue compliance burdens and litigation risk for creditors.
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The Truth in Lending Act was passed in 1968, giving homeowners the right to rescind, or cancel illegal loans for up to three years after closing the transaction when borrowers are not provided with requisite disclosures at settlement.
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Foreclosure attorneys have used the rescission clause to help homeowners in numerous cases involving predatory lending where faulty and fraudulent disclosures were key pieces of evidence.
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“We feel that this proposal almost completely guts the right to rescission, which is the main tool that consumers have to defend against foreclosures where loans were not properly originated,” stated Nina Simon, Center for Responsible Lending. “All of the cases we have worked on have had very abusive terms and often violated state law. But the remedy that stops the foreclosure cold in its tracks is the rescission claim, and that’s been undermined by many courts, but never by the Fed before.”
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“TILA has been the principal tool used by victims of irresponsible or predatory lending to stop foreclosure and it was really a critical stop gap measure to ensure that lenders would underwrite appropriately,” said David Berenbaum, National Community Reinvestment Coalition.
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Sens. Tim Johnson (D-S.D.), Jack Reed (D-R.I.), and Sherrod Brown (D-Ohio), and others on Capitol Hill support the groups’ claims, but many lawmakers believe the final decision should be made by the new Consumer Financial Protection Bureau.
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The National Consumer Law Center submitted comments to the Fed on behalf of its low income clients.
“In these comments we address the range of subjects included in this complex docket. We believe that some of the Board‘s proposals are constructive and will further consumer protections for homeowners, or could do so if revised. However, some of the proposals are extremely damaging to consumers and to preservation of homeownership, and – we believe – are beyond the Board‘s authority..“Because of the extensive damage that the Board‘s proposal would cause to consumers seeking to exercise the extended right of rescission, we already have made – and now repeat – the unprecedented request that the Board withdraw this docket. In the face of an unparalleled foreclosure crisis, with foreclosure rates more than three times higher than those in the Great Depression, now is the time to reinforce the fundamental importance of TILA rescission. Instead, the Board has proposed rules aimed at reducing the ?litigation risk? for mortgage companies by eviscerating the single most effective tool that homeowners have to stop foreclosures and avoid predatory loans: the extended right of rescission.”
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The Mortgage Bankers Association has not taken a position on the matter, nor did it submit a public comment to the Fed, although MBA public affais chief John Mechem said, “We are inclined to support the direction the Fed is headed.”
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Some critics of the proposal charge the central bank’s proposal falls outside is authority, pointing to powers assigned to the new Consumer Financial Protection Bureau that become effective July, 2011.
Hmmm
Since when does a private banking cartel have the RIGHT to change the law? This law was passed by Congress and ONLY Congress can change it period. When are OUR representatives in Washington going to stand up to the FED and send them packing. Now would be a good time. If we don’t they will destroy what little is left
In 1975, Congress passed the Home Mortgage Disclosure Act, which required mortgage loan companies to fully report all public loan data. While this and other consumer-friendly provisions associated with mortgages have been in impact for more than 30 years, the recent U.S. subprime mortgage crisis illustrated that additional regulation may be necessary. Hence, the soon-to-be-activated Consumer Financial Protection Bureau plans to debut a new version of the standard mortgage disclosure form that should make things easier for homebuyers to understand. I found this here: CFPB to make simpler mortgage disclosure forms a priority