The Federal Reserve finished crafting their subprime mortgage rules regarding Truth in Lending called Regulation Z. I am doubtful that this rule would have been updated if we weren’t experiencing the current mortgage market turmoil.

Because this is such an important issue, it will take effect on October 1, 2009 (more than a year from now.)

>”The proposed final rules are intended to protect consumers from unfair or deceptive acts and practices in mortgage lending, while keeping credit available to qualified borrowers and supporting sustainable homeownership,” said Federal Reserve Chairman Ben S. Bernanke. “Importantly, the new rules will apply to all mortgage lenders, not just those supervised and examined by the Federal Reserve. Besides offering broader protection for consumers, a uniform set of rules will level the playing field for lenders and increase competition in the mortgage market, to the ultimate benefit of borrowers,” the Chairman said.

Ask anyone whether they thought these types of rules would already be on the books (for high priced mortgages – 1.5% above the “average prime offer rate”) – here are some excerpts:

* Prohibit a lender from making a loan without regard to borrowers’ ability to repay the loan from income and assets other than the home’s value.
* Require creditors to verify the income and assets they rely upon to determine repayment ability.
* Ban any prepayment penalty if the payment can change in the initial four years.
* Require creditors to establish escrow accounts for property taxes and homeowner’s insurance for all first-lien mortgage loans.

And here are rules for all loans, not just high priced:

* Creditors and mortgage brokers are prohibited from coercing a real estate appraiser to misstate a home’s value.
* Companies that service mortgage loans are prohibited from engaging in certain practices, such as pyramiding late fees.
* Creditors must provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan secured by a consumer’s principal dwelling, such as a home improvement loan or a loan to refinance an existing loan.

Is it just me or do these rules seem crazy obvious? Why aren’t they on the books already? Why on earth do these rules only apply to subprime mortgages? Not Alt-A or Prime?

Speaking of scapegoating subprime, and something about the squeaky wheel getting the grease, lets talk oil and the evils of the dreaded speculation.

And the tale of two economies…

Highlights of Regulation Z [Federal Reserve]