Federal Reserve Board Governor Randall Kroszner said on Monday, ” With the continuing high rates of foreclosure and the high costs associated with foreclosures, it is in the interest of lenders, investors, and borrowers to develop prudent loan modification programs to help borrowers on a larger scale and at sustainable levels.

Efforts to streamline or standardize the loan modification process could lower transaction costs, provide timely relief for distressed borrowers, and reduce uncertainties in the market for subprime mortgage-backed securities. Industry and consumer groups are exploring loan modification templates, clarification of accounting rules, automated electronic platforms, and standards to streamline the loan modification process. The Hope Now Alliance–a broad-based coalition of government-sponsored enterprises, industry trade associations, counseling agencies, and mortgage servicers–is making efforts to find ways to help borrowers through loan modification plans.

The Board has also sought to ensure clear lending standards through stricter regulations prohibiting abusive and deceptive practices in the mortgage market under the authority of the Home Ownership and Equity Protection Act (HOEPA). This proposal is intended to protect consumers and to preserve consumer choice by targeting protections to borrowers who face the most risk. Under HOEPA, the Board is considering changes that would stem abusive practices by addressing the following: a requirement to assess repayment ability, a requirement to escrow taxes and insurance, a ban on prepayment penalties in certain circumstances, a prohibition on a lender paying a broker more than the consumer had expressly agreed that the broker would receive, and a ban on specific advertising practices deemed unfair or deceptive. Clarifying lending standards will increase investor confidence in the mortgage market and help to revive the flow of credit to consumers, particularly those with shorter or weaker credit histories. ”

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