New Mortgage Regulation: How will it affect consumers?
Source:
http://boiserealestateinfo.net
Publish Date: 9/06/2008
The federal government – in response to the lending crisis and numerous cases of mortgage fraud perpetrated against consumers in recent years – has just announced a significant overhaul of mortgage industry regulations.
The comprehensive package of rules includes these highlights:
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Most of the teeth in the rules pertain to subprime mortgages and make it harder to borrow without verification of assets and income.
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Those with bad credit may be adversely affected because tighter loan application standards for subprimes will remove their main source of mortgages.
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But ultimately the rules are intended to protect consumers from borrowing mortgages they cannot afford to repay and protect the nation from a repeat of the subprime mortgage crisis.
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Mortgage brokers must now be licensed. In the past many were not – and some even practiced despite criminal felony records. Now all mortgage lenders will be held to a higher standard of professionalism.
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But skeptics point out that whenever a profession is regulated, it usually cuts down on competition. Lack of competition typically translates into fewer brokers who can then charge higher fees. This may leave low income Americans at a disadvantage.
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The Fed severely curtailed the use of prepayment penalties. Prepayment penalties are substantial fees imposed on borrowers who choose to pay off their loans early in order to save money.
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Lenders will also have to start keeping detailed escrow accounts for property taxes and homeowner's insurance. That will help manage those important payments for homeowners while also limiting the risk that could arise from forgetting to pay obligations on time or not having adequate funds to make tax and insurance payments.
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But the escrow rules are primarily meant to put a stop to fraud. Sometimes corrupt lenders collect insurance and tax payments from homeowners and then pocket them instead of paying those policies and taxes as promised.
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Lenders are now expressly forbidden from pressuring real estate appraisers into artificially inflating or deflating home values.
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Companies that service mortgage loans must credit customer payments immediately and will have less flexibility regarding charging high late fees. They must also respond in a prompt and efficient manner to requests for customer account statements.
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Creditors must provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan, including home improvement loans or mortgage refinances.
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Until they receive the written estimate, consumers cannot be charged any fees except for a reasonable fee for doing a credit check.
- Lenders must also provide more complete and honest disclosure when placing advertisements for their loan products.
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One of the most powerful rules relates to borrowers who are preyed upon by lenders. In the past they had to prove that there was a pattern or systematic practice of such illegal predatory behavior in order to win lawsuits in court. Convincing a court of such habitual and intentional behavior can be nearly impossible to do, but under the new regulations it is no longer necessary. That makes it much easier for consumers to seek justice if they have been wronged by lenders, and the ruling was praised by many consumer advocacy organizations. The new guidelines do not go into effect until the end of 2009, so they are of little consequence to those already facing foreclosure, and those who crafted them did not mean for the rules to be a bailout or rescue plan. ### You have my permission to republish the “In My Opinion” articles in your web site, newsletter, or ebook, if you follow these terms and conditions: |
