Reactions to the Fed's Subprime Solution

Yesterday's announcement that the Federal Reserve endorsed new rules for lenders of subprime mortgages, which includes banning low-documentation loans and setting limits on penalties for borrowers who want to repay their loans early, set off a debate about how effective the plan would be -- and who would really benefit from it.

Some experts say the proposed changes to the Regulation Z (Truth in Lending) and the Home Ownership and Equity Protection Act will not help to repair the failing housing market, but will just benefit lenders and lock-out some buyers. Others say homeowners should be encouraged by the plan.

"Eliminating the prepayment penalties is great," says Steve Habetz, president of Threshold Mortgage in Westport, Conn. "Individuals that are ready to refinance out of these loans now can't because prepayment penalties make it very difficult for them to refinance. I've seen prepayments be as much as 5%. That changes the loan to value and makes it impossible to get out." ...