Fed Adopts New Mortgage Rules to Protect Consumers

The Federal Reserve adopted new standards that ban yield spread premiums on mortgages, a practice that critics say led to homebuyers being saddled with unfairly high mortgage rates.

The premiums involve lenders paying a bonus to mortgage brokers who brought them customers willing to pay high-interest rates on loans, The New York Times reported. Critics say this practice led to brokers forcing high-interest loans on borrowers, telling them it was the best deal they could get.

"People didn't just happen to end up in risky loans," Michael D. Calhoun, president of the Center for Responsible Lending, told The New York Times. "Mortgage brokers and other people on the frontlines were getting two to three times as much money to push buyers into those loans than they were into 30-year fixed-rate loans. So what do you think happened?"

The new rules, which come into effect in April, ban making payments to a lender or broker based on the loan's interest rate. The borrower must also be provided with other options, including the lowest-qualifying interest rate.

The new rules still allow for compensation based on a fixed percentage of the loan amount.