Leslie Turk

Bernanke cracking down on shady lending

by Leslie Turk

The Federal Reserve may this week give home buyers more protection from the shady lending practices that led to record housing foreclosures, the Associated Press is reporting.

Chairman Ben Bernanke and his colleagues at the central bank are expected to approve a plan that would crack down on dubious lending practices that have hurt many of the riskiest "subprime" borrowers -- people with tarnished credit histories or low incomes.

Expected approval of the plan comes as Bernanke and company moved over the weekend to bail out Fannie Mae and Freddie Mac in hopes of restoring investors' dwindling confidence in the financial health of the nation's two biggest mortgage companies. They hold or back $5.3 trillion of mortgage debt -- roughly half the outstanding mortgages in the country.

If even one were to fail, it would be a massive blow to the already devastated housing market.

Proposed rules made public in December and expected to be approved early this week would:

-restrict lenders from penalizing risky borrowers who pay loans off early.

-require lenders to ensure those borrowers set aside money to pay for taxes and insurance.

-bar lenders from making loans without proof of a borrower's income.

-prohibit lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the homes value.

-curtail misleading ads for many types of mortgages.

-bolster financial disclosures to borrowers.

Consumer groups are complaining that the new rules are not strong enough, while lenders are concerned they may be too tough, limiting mortgage options for people or making it harder for some to secure financing.