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This act was originally passed in 1994 to target abusive practices in home equity lending. The Fed's new move extends protections to home purchase loans.  The new rule is designed to address unfair, abusive and deceptive home mortgage lending practices which put millions of properties in foreclosure and former owners on the street.

Most lenders long ago curtailed many of the practices now forbidden by the new regulations. However, the new rules should help prevent future runs on bad loans by helping remove them from the market. Perhaps more important, key provisions in the new rules will give consumers cause to pause before shopping for a mortgage.

Effective October 1, 2009, the new rule's four key provisions for a newly defined category of "higher-priced mortgage loans," include protections that will:

• Prohibit a lender from making a loan without regard to borrowers' ability to repay the loan from income and assets other than the home's value.
• This forces lenders to more closely scrutinize a borrower's debt-to-income ratio, looking for less debt, more income and savings, larger down payments and other liquid assets the borrower can fall back on. Consumers may have to take more time saving and paying off debt before buying a home.
• Require creditors to verify the income and assets they rely upon to determine repayment ability.

This provision will make it especially tough for home-based business owners, self-employed people, contract workers and others who don't get a regular pay stub.

• Ban any prepayment penalty if the payment can change in the initial four years. For other higher-priced loans, a prepayment penalty period cannot last for more than two years.
• Without this lender risk-reducing tool they are more likely to offer a narrower variety of loans, forcing some consumers out of the market and more of them to spend more time shopping around. Shopping around, of course, is a smart practice.

• Require creditors to establish escrow accounts for property taxes and homeowner's insurance for all first-lien mortgage loans.

This means borrowers will have to figure on paying more each month than just the home loan's principle and interest (or interest only, where available). In addition to rules for higher priced home loans other rules include:

• Creditors and mortgage brokers are prohibited from coercing a real estate appraiser to misstate a home's value.
• Companies that service mortgage loans are prohibited from engaging in certain practices, such as pyramiding late fees. Servicers are also required to credit consumers' loan payments as of the date of receipt.
• Creditors must provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan secured by a consumer's principal dwelling, such as a home improvement loan or a loan to refinance an existing loan.
• The rules also specifically outlaws seven deceptive and misleading advertising and requires more extensive information about rates, monthly payments and other loan features.

Congress just provided a bit of good news for first time buyers.

The massive, 690-page housing bill just approved on Capitol Hill contains an important stimulus program designed to jump-start housing sales.  It's a tax credit, effective immediately, that could cut up to $7,500 off the federal tax return of those who buys a house before the end of next June, when it expires.

Buyers have to be first-time purchasers, or renters who haven't owned a house anytime in the past three years.  The "credit" is actually more like an interest free loan, repayable over 15 years. Single taxpayers can only qualify for a $3,750 maximum credit.

Starting this week, hundreds of thousands of potential buyers who've been on the sidelines can purchase a new or resale house and qualify for the credit.  Plus there's no Congressional limit on how many buyers can take advantage of the new incentive.  This is the time to start looking.  Prices haven't been this low for years.

What if the housing market has declined and the homes in your neighborhood are selling for less than what you paid?  You may wish to consider applying for a reduction in your property taxes.  As you know, property taxes are tied to the purchase price of your home.  However, when values fall below what you paid, you may be entitled to a reassessment by the tax assessor. 

There's a difference between an "appraisal" and an "assessment." An "appraisal" is used by lenders to get an independent valuation of the property while an "assessment" is used by local governments to value properties for tax purposes.  You may wish to obtain an appraisal and, should your home be worth less than you paid, you may wish to submit the appraisal to the tax assessor.  The lower appraisal may give you grounds to ask for a new assessment.  Or, ask your local realtor to give you three comps (comparables, homes sold in the last three months) which reflect the lower values.  You will, however, need to submit this in the Spring when the assessments for the year are made.

If you are purchasing a home and have selected a lender and been given a Good Faith Estimate, then it is always a good idea to consider locking in your interest rate.  A traditional rate lock is a lender's guarantee that your mortgage will be at a specific interest rate with other costs and terms.  Most locks are designed to protect home buyers from rising rates, but those refinancing can also benefit from the same process. 

In a changing market, especially when the change is for the worst, a lock may be crucial in order to keep your rate and payment at a level where you are comfortable.

During the first half of 2008, the high of 6.45 percent in recent weeks was one point above the low of 5.48 percent in January.

A rate lock's terms include a specified period for the lock. If you fail to complete your home purchase or refinance before the lock runs out, and interest rates rise, brace yourself for higher costs.

In an up-and-down interest rate market, falling interest rates are another strong reason for a rate lock.  If interest rates fall during the lock period you can't take advantage of the lower rate unless you rewrite the lock at additional cost or include a "float down" provision in the original lock. The "float down" option grants you a lower rate if rates fall within a given window of time. Again, unless specified otherwise, float downs stick you with the higher rate if rates rise during the lock period.

Get it all in writing. It's difficult to enforce a verbal agreement.

The contract should lock in the interest rate, points and other costs, where possible. The agreement should include the lock's effective date, lock cost, what terms are locked, the lock's expiration date and time, and any post-lock options.

Lock upon application if you get a desirable rate so that your rate is locked as you spend time getting the application approved. That's particularly important if an increase would make buying unaffordable.  Or, you can always lock later in the process.  My web site gives a current lock recommendation.

Locks average 30 days, but can be obtained for longer periods, however, the interest rate could be higher for a longer lock.  Once you lock your rate, be sure and submit all documents required by the lender so your loan will be ready by the end of the lock period.  Note the lock length and make sure your lender completes the process within this time period.

According to California's Building Industry Association, fewer new homes will be built in California this year than in any year since World War II.  This news was announced at the recently held Pacific Coast Builder's Conference by CBIA president Bob Rivinius.

Rivinius went on to say that things are troubled in the building industry and that their estimates point to the need for 230,000 new homes a year just to keep pace with the demographic demand. The forecast for the number to be built? Only 72,000 new homes, even with a continually growing population.

In a California Department of Finance Report, chief economist Alan Nevin found that the state had added 490,000 people in the last year, not including illegal immigrants. He also added that every other industry in the state except for homebuilding was doing well.

The forecast for newly built homes was originally much higher, but no one expected the rising amount of short sales and foreclosures as well as through-the-roof gas prices, hindering commuter markets.

CBIA chair Ray Becker said the loss of jobs in construction and related industries amounted to 181,300 over the past two years, threatening the entire state's economy. Becker is lobbying for state and local governments to make reforms, extending the life of subdivision maps, deferring impact fees and is also urging the government to take into the account the effect any new legislation would have on housing.

Without reform, he warns, many builders will go out of business, crippling the industry's ability to respond once the market turns.

When Congress started fashioning a sweeping rescue package for struggling homeowners earlier this year, 2.6 million loans were in trouble. But the problem has grown considerably in just six months and is continuing to worsen.

More than three million borrowers are in distress, and analysts are forecasting a couple of million more will fall behind on their payments in the coming year as home prices fall further and the economy weakens.  The proposed program would touch only a small fraction of those in trouble.

The bill before the Senate would let lenders and borrowers refinance troubled mortgages into more affordable 30-year fixed-rate loans that are backed by the government. Other proposals include expanding the current plan to make it mandatory instead of voluntary for certain home loans; having the government buy loans outright from lenders; and providing some way and some incentives to let homeowners become renters in their own homes.

But not everyone supports government interventions. Some Republicans say the proposal would use government subsidies to bail out reckless lenders and borrowers.

To take part in the proposed program, lenders would have to lower each debt obligation to 85 percent of the home’s current value. Borrowers would stay in their homes but would have to pay a 1.5 percent annual insurance premium. If homes’ values grow and borrowers sell or refinance, they would have to share the gain with the government.

To qualify, borrowers would have to be in enough trouble that they could not afford their current mortgage payments but financially strong enough to make payments on their new loans.

The effectiveness of the bill will depend to some extent on how it is handled by the F.H.A.  It will have several challenges: persuading the lenders who made second mortgages and home equity loans to cooperate; screening loans to make sure borrowers have a good shot at keeping their homes after refinancing; and weeding out those trying to take advantage of the system.

Second mortgages and home equity loans were popular during the housing boom and allowed Americans to buy a home with little or no money down or let them take out cash against their homes as prices rose. Now, home values have fallen so much that there is little or nothing left to pay off these loans when homes are sold or repossessed. The Congressional Budget Office estimates that about 40 percent of riskier mortgages made in recent years are coupled with such secondary loans.

Under the Congressional plan, home equity loans and second mortgages would have to be eliminated before homes could be refinanced. Another challenge would be selecting borrowers who have the best chance of paying off new loans, making sure lenders are not unloading only their worst loans, and guarding against borrowers who can pay their current loans but would like a cheaper, government-backed loan.

Analysts do not expect the tide of foreclosures to ebb until the economy improves markedly.  Economists at Lehman Brothers say home prices nationally may drop 15 percent by the end of 2009. That may force policy makers to consider further intervention