WASHINGTON — Mortgage firms are pressing the Federal Reserve to curb homeowners' right to invalidate loans based on flawed documents — a right consumer groups say is one of the few weapons borrowers have to battle unfair lending.
Consumer groups and industry lawyers say a rule under consideration by the central bank would make it harder for borrowers to exercise their right of "rescission," which forces a lender to relinquish a lien on a mortgaged property.
Ken Markison, regulatory counsel at the Mortgage Bankers Association, said the change would save lenders money. "Greater clarity will help avoid unnecessary litigation and reduce costs," Markison said.
Lenders are pressing the Federal Reserve to act on the issue now because starting in July, rescission rules will come under the purview of the new Consumer Financial Protection Bureau, industry lawyers said.
Since the financial crisis began, the Fed has come under criticism for having failed to meet its existing legal mandate to protect consumers from deceptive mortgages and other financial products. That track record was one reason behind Congress's push to create an independent consumer agency.