The Federal Reserve Board has abandoned plans to curb homeowners’ right to invalidate loans based on flawed documents.
Leonard Chanin, the deputy director of the Fed’s division of consumer and community affairs, told a meeting of the American Bar Association on Jan. 10 in Naples, Florida that the Fed would hold off on changes to borrowers’ “right of rescission.” Instead, he said, the new Bureau of Consumer Financial Protection would assume responsibility for the issue later this year, according to two people present at the meeting.
“He made clear that the intention was not for the board to proceed now but send this issue over to the CFPB to deal with,” Kathleen Keest, senior policy counsel at the Durham, North Carolina-based Center for Responsible Lending, who was at the ABA meeting, said in an interview.
Jeffrey Naimon, an attorney with the law firm of Buckley Sandler LLP in Washington, said Chanin left little doubt the Fed would not move any further with the rule, which it had proposed in September.
“It wasn’t a discussion item,” Naimon said in an interview. “It was an announcement.”
Fed spokeswoman Susan Stawick declined a request for comment by e-mail.
The proposal had drawn a vociferous response from consumer groups, which charged that the Fed was taking away one of the few tools borrowers can use to slow down or halt unfair foreclosures.
The right of rescission, established by the Truth in Lending Act, allows borrowers who can show a material misstatement in loan documents to issue a rescission notice to the lender, who must then revoke the lien on the property. The Fed currently writes regulations related to the law, but this power is scheduled to shift to the consumer bureau in July.
Chanin will join the consumer bureau as head of its regulation-writing team.
Ken Markison, regulatory counsel at the Mortgage Bankers Association, which supported the Fed’s proposed rule change, did not respond to a request for comment by e-mail. Markison told The Wall Street Journal, which reported the Fed’s shift on Jan. 14, that the Fed’s about-face is unfortunate because “there could be the misimpression that this somehow might not be the appropriate position.”
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