The federal government has stepped in and put its foot down. Lenders are no longer allowed to grant subprime mortgage unless there is proof you are able to repay it! This includes those jumbo mortgages too.

For a while, verifying a borrower's ability to pay was out of fashion. Now, the Federal Reserve has banned stated-income subprime loans after they fell out of favor. The Federal Reserve's rules divide mortgages into two categories: '' higher priced'' loans and everything else.

People who have had trouble paying their bills on time are typically put into the "higher-priced" category. These are known as the subprime mortgages. Most of the rules apply only to this "higher-priced" category.  Dealing with this category has inspired feds to design a net to capture subprime loans, also affecting jumbo mortgages.

Under the new rules, you can't get a higher-coast loan unless the lender decides you can afford the highest scheduled payments during the first seven years of the loan. This means if you get an adjustable rate mortgage, you have to be able to afford the payments at the highest rate.

Prepayment penalties for high-coast loans are banned if the rate can change in the first four years. Prepayment penalties can't last more than two years and the higher coast loans have to have escrow accounts for property taxes and insurance.

Luckily for lenders they will have plenty of time to adapt to the new changes. The rules don't go into affect until October 1, 2009.

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