Page last updated at 15:42 GMT, Monday, 14 July 2008 16:42 UK

New protection for US home buyers

US home for sale
Many people have been lent more money than they can afford to borrow

The US Federal Reserve has brought in rules to give home buyers added protection from unscrupulous lending that has hit sub-prime borrowers.

The central bank approved a plan in the face of increasing mortgage delinquencies and foreclosures.

For all mortgages, the plan would require advertising to contain facts about rates, monthly payments and other loan features.

It would curtail certain deceptive or misleading advertising practices.

Proof of income

Other practices would also be clamped down on by the rules, which cover new loans made by thousands of lenders, including banks and brokers, but not existing loans.

The plan would bar lenders from making loans without proof of a borrower's income, and require lenders to make sure risky borrowers set aside money to pay for taxes and insurance.

It would also restrict lenders from penalizing risky borrowers who pay loans off early.

'Important move'

In addition it would prohibit lenders from making a loan without considering a borrower's ability to repay a home loan from sources other than the home's value.

Lenders also have to credit a mortgage payment to the homeowner's account on the day it is received.

"Clearly this is closing the barn door after the fact," said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School of Business.

But she added: "this is a very important move. It absolutely will make a difference going forward."




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