Fed urged to deny borrower rights to invalidate mortgages
12/16/2010
By Credit.com Staff
The Federal Reserve has come under fire from lenders who are pushing the bank to rescind a homeowner's ability to nullify their loans on the basis of document errors, according to Bloomberg. The current safeguard, known as rescission, requires lenders to remove liens from mortgaged properties, a move that has become more prevalent amid the foreclosure crisis.
Lenders argue that the right to rescission is essentially a "forced modification." The process involves allowing the borrower to sign on with a new creditor and the original lender is required to relinquish interest and fees, while the principal is repaid by the second lender, Bloomberg says. However, consumer advocates say rescission is the only policy that can help homeowners battle unfair practices.
"It is ultimately the biggest hammer in the toolkit for a lawyer helping someone to save their home," National Association of Consumer Advocates executive director Ira Rheingold told Bloomberg.
More lenders are putting pressure on the Fed to resolve this issue now before the topic comes before the Consumer Financial Protection Bureau, which is expected to be up and running by the summer 2011.
