Now, despite mounting evidence of borrower mistreatment, the Federal Reserve has proposed a rule that would disable the most effective legal tool that borrowers have to fight foreclosures.
First, some background: The Truth in Lending Act from 1968 gives borrowers the “right of rescission,” the ability to undo a home refinancing or home equity loan within three years of the closing if the lender did not make proper disclosures — generally of the loan amount, interest rate and repayment terms. The law makes allowances for mere mistakes by the lender, but otherwise requires strict compliance, as well it should: disclosure is the main — often the only — consumer protection in the mortgage market.
It will come as no surprise that disclosure violations are not uncommon in the loans of the bubble years, so rescissions have become a valuable defense against foreclosure.
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