Central bank will propose rules on Tuesday to protect mortgage borrowers from banks and brokers.

December 15 2007: 12:08 PM EST

WASHINGTON (AP) -- People taking out home mortgages may gain new protections soon against shady lending practices as the Federal Reserve seeks to back even the riskiest borrowers, already hit hardest by the housing and credit crunches.

Rules expected to be proposed Tuesday would apply to loans made by all types of lenders, including banks and brokers. The plan from the Fed, which has regulatory powers over the nation's financial system, could be finalized next year. The effective date would be know then.

The Fed is considering:

--barring lenders from penalizing subprime borrowers - those with spotty credit or low incomes - who pay their loans off early.

--forcing lenders to make sure that borrowers, especially subprime borrowers, set aside money to pay for taxes and insurance.

--restricting loans that do not require proof of a borrower's income.

--examining lenders' failure, in some cases, to consider a borrower's ability to repay a home loan.

--improving financial disclosure so people better understand the terms and conditions of their mortgages and get this information when it is most useful.

--curtailing abuses in mortgage advertising.

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