New Rules = Bad Ideas and Higher Rates

Amy Le wrote a blog this morning and I just wanted to expand my answers a little on my own blog.  you can read her blog here. 

The new rules
Under the proposal unveiled last December, the rules would:

• Restrict lenders from penalizing risky borrowers who pay loans off early

Bad Idea: The Pre-Payment Penalty, I disagree with a 2 year ARM with a 3 year PPP.  I avoided this scenario at all costs.  That just sounded like an opportunity for gouging to me, but a 2 year ARM and 2 year PPP.  Well, the lender has to make some money and a proper LO will advise the client on how to work around that and come out ahead.

• Require lenders to make sure these borrowers set aside money to pay for taxes and insurance

Bad Idea: people just do not want to escrow - we don't I would rather do what I will with my cash than let the lender earn interest on it. 

• Bar lenders from making loans without proof of a borrower's income

Bad Idea: So, much for the self-employed borrower who goes out of his or her way to write a bunch of stuff off.  I will agree that the guy working for a home center for $8/hr does not need a SISA loan.  I am self-employed and I do not show a lot of income, but I do enough to afford a nice home, but since I cannot show proof in the gov’t eyes; I don’t get a house.  Gee, thanks. 

• Prohibit lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value

Bad Idea: Never did a loan like this.  So, I am not sure on how to answer that.  So, I won’t.   Oh, wait, I did do one like this.  Lady bought her house in 1979 for $89,000 refi'd it in 2004 for $300k, home value $1.5 million.  She just wanted a couple more summers in the home before she had to sell thanks to the high taxes on the Lake.  Would you have told her “NO”?

I think that lenders will just raise rates to cover their losses on the ones that cannot do then and the average Joe American Homeowner will end up payng the parice.  Just like we always do

I really do not think that we need more regulation. We just need to enforce the ones we have.  If we are not backing the laws that we have why make more that we won’t either.

Dave Woodson