Financial overhaul changes the rules for consumers.
If you're planning to buy a home take note! There are several provisions in the financial overhaul bill that could affect you.
Lenders will no longer be allowed to pay mortgage brokers a commission based on the interest rate for a home loan. Known as the yield spread premium, critics had argued that this fee allowed brokers to guide borrowers towards risky loans with high interest rates. The law effectively bar brokers from receiving any compensation tied to the terms of the loan, other than the principal amount.
The measure also prevents borrowers from paying a portion of their closing costs upfront, and rolling the rest into the loan in the form of a higher interest rate. Under the bill, loan originators will now be required to collect all of their fees upfront or roll the entire amount into the loan.
Prepayment penalties will either be limited or prohibited, depending on the type of the loan. Lenders won't be allowed to impose prepayment penalties on certain types of risky loans, such as loans with a large balloon payment. For 30-year, fixed-rate loans, penalties will be limited to the first three years of the loan.
Lenders will be required to determine whether borrowers can afford the monthly mortgage payments, along with insurance, taxes, and other assessments. For ARMs (adjustable-rate mortgages), lenders will have to assure that borrowers can afford the highest rate allowed under the terms of the loan.
Much of this might seem like something lenders are supposed to do. However, during the housing boom, many lenders were rather overconfident about the borrowers' ability to repay loans. Stated income and no-doc loans that allowed just about anyone with a pulse to buy a house were epidemic. The credit crunch led lenders to tighten their standards. In some respects many of these reforms are akin to installing an alarm system after the burglary occurred; a little late in coming perhaps, but still vital.
Consumers who are turned down for a loan will now be entitled to receive a copy of the credit score that was used by the lender to make their decision. In addition, consumers will also be entitled to a free credit score if they were offered a loan at a less-than-favorable rate.
Since 2005, all consumers have had the right to a free annual credit report from all three credit bureaus through www.annualcreditreport.com. Currently, the only way to receive a credit score is to purchase one from one of the three credit bureaus or through www.myfico.com.
If you need help with financing the purchase of a home or simply looking for an economical place to live, contact us!
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