Consumer attorneys and legal services groups are urging the Federal Reserve to withdraw a proposal that might "eviscerate" borrowers' rights to rescind abusive mortgages and stop foreclosures.
"At the depths of the worst foreclosure crisis since the Great Depression, we are surprised that the Federal Reserve Board has proposed rules that would eviscerate the primary protection homeowners currently have to escape abusive loans and avoid foreclosures: the extended right of rescission," according to a joint comment letter signed by more than 200 consumer attorneys.
The Fed's Truth in Lending Act currently gives a borrower up to three-years to rescind a mortgage if the lender did not provide proper disclosures at closing.
The proposed rule the Fed issued in September would "seriously undermine the reliability" of TILA disclosures. More importantly, it would make it difficult to exercise this right of rescission if a borrower cannot immediately pay off the loan. "This proposal would make it completely useless to all but the wealthiest homeowners," the Nov. 16 comment letter says.
Separately, AARP has complained about the TILA proposal's impact on the right of rescission and the marketing of reverse mortgages. "Not only would those two provisions greatly undermine existing consumer protections, they break with congressional intent and exceed the authority given to the board," AARP says in its comment letter.
The Fed's proposal would prohibit requiring a consumer to purchase an annuity as a condition for obtaining a reverse mortgage. However, the proposal includes a "safe harbor" if the purchase of such a financial product occurs 10 days after the closing. "Allowing such an exception essentially nullifies this important prohibition," AARP says in it Nov. 24 letter.
The comment period on the proposed rule ends Dec. 23.
