Federal Reserve Proposal Would Hamper Ability to Fight Foreclosure
The Federal Reserve is considering a rule that would seriously diminish borrowers' ability to keep their homes when they're facing foreclosure. The new rule would destroy an important homeowner right.
January 09, 2011
The Federal Reserve (Fed) is considering a rule that would seriously diminish borrowers' ability to keep their homes when they are facing foreclosure. Numerous consumer advocacy groups are protesting the proposal, saying that it would destroy an important homeowner right.Currently, the law protects homebuyers who signed mortgage documents that were inaccurate or improperly processed. That protection will be loosened if the Fed goes forward with the proposed rule.
What Is the Right of Rescission?
Under the Truth in Lending Act of 1968, borrowers have three days to back out of a mortgage contract. In addition, homeowners who find that the mortgage lender made a material misstatement in the mortgage document or improperly processed the document have three years to demand rescission.
Rescission means that the lender would lose its lien on the property. The lender, without a secured interest in the home, would have no right to foreclose on the property. It would also have to return interest and fees to the buyer. In some cases, the first lender will work with the buyer to redo the loan.
In other cases, the buyer must find a second lender; that lender pays the principal to the first lender. Essentially, this means that the buyer has the chance to refinance the loan, possibly with more favorable terms.
How Would the Fed Proposal Change the Right of Rescission?
The new Fed proposal would make it more difficult for homeowners to use their right of rescission. The proposed rule would require homeowners to pay off the loan before the first lender drops the lien against the home. This makes it nearly impossible for the homeowners to refinance their loan.
In July 2011, the Consumer Financial Protection Bureau will take over the rules of rescission. This may be why mortgage lenders are pressing the Fed to change the rules now, before what is likely to be a more consumer-oriented agency takes charge.
What Can I Do?
Homebuyers with predatory loans or loans whose terms were not properly disclosed have a powerful tool in the fight against foreclosure. The right to rescind may give the homeowner the ability to either negotiate with the current lender or seek a new loan.
People who are going through bankruptcy and are striving to keep their homes may find that the right of rescission helps them keep their homes. If you are a homeowner going through bankruptcy, now is a good time to look at your options. Speak with an experienced bankruptcy attorney about the right of rescission.
Article provided by Debt Advisors, S.C.
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