Household HSBC Watch

Here at Household - HSBC Watch we receive complaints every day. Some involve pre-payment penalties on home loans that trap the buyer, preventing refinancing or otherwise putting the buyer upside down in the home. That may soon change according to Federal Reserve Chairman Ben Bernanke.

“Although the high rate of delinquency has a number of causes, it seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high-cost loans, that were inappropriate for or misled the borrower,” Bernanke added.

For risky borrowers, the new rules will bar lenders from making loans without proof of a borrower’s income. The rules will require lenders to make sure risky borrowers set aside money to pay for taxes and insurance.

Lenders will also be restricted from penalizing risky borrowers who pay loans off early. Such “prepayment” penalties are banned if the payment can change during the initial four years of the mortgage. In other cases, a penalty can’t be imposed in the first two years of the mortgage.

And, lenders would be barred from making a loan without considering a borrower’s ability to repay a home loan from sources other than the home’s value. The borrower need not have to prove that the lender engaged in a “pattern or practice” for this to be deemed a violation. That marks a change - sought by consumer advocates - from the Fed’s initial proposal and should make it easier for borrowers to lodge a complaint.

We will see what shakes out in the end. For banks like HSBC that pack loans with every possible profit-making device, the practices might have finally caught the attention of the Fed and other regulators.