Fed to bar loan penalties that deter refinancing

Washington: The Federal Reserve, in a bid to end abusive lending practices, will ban penalties on so-me high-cost mortgages that make it harder for people to refinance, said a person familiar with the decision.

The prohibition on prepayment penalties, part of a broader Fed response to the collapse of the subprime mortgage market, targets high-cost loans with interest rates that reset in the first four years.

Rules also would limit charges when borrowers seek to pay off mortga-ges in the first two years on other types of high-priced loans.

Vote

The Federal Reserve Boa-rd of Governors will vote tomorrow on a series of rules to strengthen protections for borrowers taking out subprime home loans.

"This is a move in the right direction but still falls short of what consumer groups have advocated which is an outright ban on prepayment penalties for all subprime and non-traditional mortgages," Allen Fishbein, director of housing and credit policy at the Consumer Federation of America, said yesterday in a telephone interview.