Will new loan rules passed unanimously today by the Federal Reserve Board better protect home borrowers? Or, will they even further dampen borrowing power of prospective homeowners, and have a negative effect on the already-depressed housing market?
That matter is up for debate. But as mortgage defaults and foreclosures continue to escalate month to month, here in Chicago and across the U.S., many blame easy, high-risk loans offered by many lenders as the main culprit.
The Fed action will take many of the riskier mortgage loan options off the table - including the controversial "stated income" loan.
It will also stop lenders from using only the expected equity of the buyer's home to determine approval. Other sources of buyer's income need also be checked, to assure chances for repayment even if the home declines in value.
All first-lien mortgages must have escrow accounts for homeowners insurance and real estate taxes. Presently, these escrows can be waived under certain circumstances.
Most pre-payment penalties will be banned. Loans whose payments could change during the first four years of the loan cannot be charged a pre-payment charge if they payoff the loan during this period. Other loans cannot have pre-payment penalties during the first two years of the loan.
New, more specific loan disclosures would have to be provided, and deceptive or misleading advertising would be stopped.
All conventional loans would have to comply with the new Fed rules, whether or not the loans are offered by a Federal Reserve member bank. (For example, mortgages offered by Credit Unions need also comply.)
The Fed is suggesting the changes go into effect in October, 2009, with the exception of regulations involving the escrow requirements, which would begin in April, 2010.
According to Fed Chairman Ben Bernanke, "The proposed final rules are intended to protect consumers from unfair or deceptive acts and practices in mortgage lending, while keeping credit available to qualified borrowers and sustainable home ownership."
See our post @ BlogChicagoHomes.com for more information, with a link to Jeanine Aversa's story in yesterday's Chicago Tribune.
Check out as well today's article in the Wall Street Journal, by reporters Meena Thiruvengadam and Maya Jackson-Randall.
DEAN & DEAN'S TEAM CHICAGO
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