Federal financial reform legislation will have far-reaching impacts on U.S. consumers.

“It will strengthen consumer protection in the areas of financial products and services, limit taxpayer liability for financially risky banks and prevent or stop unfair or deceptive practices,” says Debra Pankow, North Dakota State University Extension Service family economics specialist.

“This legislation also means that, for the first time, one federal agency - the Consumer Financial Protection Bureau - will be responsible for financial consumer protection,” she adds.

Mortgage reform is a major part of the legislation (the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010) and will impact millions of people. Here are some of the new rules:

• Lenders are required to verify that borrowers have the financial ability to repay a loan, including payment increases.
• Lenders are banned from steering customers into high-cost, unaffordable loans. The law eliminates yield spread premiums, which are bonuses paid to mortgage brokers for charging borrowers a higher interest rate than their credit histories warrant.
• Lenders who resell mortgages to investors must hold onto at least 5 percent of the riskier loans they make.
• Penalties for prepaying a mortgage are prohibited on adjustable-rate loans and limited to the first three years on fixed-rate loans.
• Mortgage origination fees are limited to 3 percent of the loan.
• New mortgage disclosure forms will be developed in an attempt to assure that consumers understand the terms of every home loan before entering into a contract.
• Borrowers who refinance a mortgage must receive tangible benefits from the loan, meaning they must be better off financially after refinancing.
• Consumers with high-cost mortgages will receive improved protection, such as limits on fees and penalties, under the Home Ownership and Equity Protection Act.
• Regulations will be written to specify which elements of the Home Mortgage Disclosure Act loan data must be collected from mortgage companies and address how the data will be disclosed publicly while protecting applicants’ privacy.
• The Consumer Financial Protection Bureau (CFPB) will have authority over the practices of large bank and nonbank mortgage lenders, including loan originators, and mortgage brokers and servicers.
• The CFPB will identify unfair and deceptive practices in the reverse mortgage industry and likely will write rules to prevent such practices.

The legislation also contains foreclosure prevention provisions, including:

• Homeowners who are unemployed or underemployed or have serious medical conditions will be eligible to apply for Emergency Homeowner Loan Program funds. Up to $50,000 in interest-free loans will be available for up to two years to cover mortgage payments. The loans will be repaid when the home is refinanced or sold.
• Relief funds will be available for neighborhoods to redevelop abandoned, foreclosed properties.
• The CFPB will create standards for mortgage modifications for troubled homeowners and monitor mortgage servicers’ loan modification efforts.
• The CFPB will write rules to protect consumers from unfair and deceptive mortgage lending and foreclosure rescue schemes.

In the area of credit scores, consumers who are denied credit or a loan or have been charged a higher interest rate based on their credit record are entitled to a free copy of their credit score in addition to a free credit report. Also, the CFPB will analyze the differences between credit scores sold to creditors and consumers and report its findings to Congress.

For more information on the new financial reform legislation, visit http://capwiz.com/consumeraction/utr/1/BCEUNBBVVE/IOYINBBVWF/5657733786/.

NDSU Agriculture Communication