QUESTIONABLE MORTGAGE LOAN PRACTICES Targeted By Fed!
QUESTIONABLE MORTGAGE LOAN PRACTICES Targeted By Fed!
MOVE AIMS TO END PRACTICES SOME EXPERTS CONTEND CONTRIBUTED TO TODAY’S MORTGAGE CRISIS!
As foreclosures continue to rise here in Chicago and across the nation at an alarming rate the Federal Reserve Board is expected to approve reforms to Mortgage Lending Procedures to greatly reduce the chance that new high-risk loans can again be issued.
The new program would directly impact new non-FHA loans issued by Banks and Loan Brokers. This is not a bailout program for existing loans – these would NOT be affected.
Proposed rules discussed originally last December but only now being finalized for possible implementation include –
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Restrictions on pre-payment penalties for most loans
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Stronger reserve and escrow requirements for property taxes and homeowners insurance
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A prohibition on "stated income" loans where the borrower’s income is not verified
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Improved financial disclosure requirements for borrowers
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Strong punishment for lenders with misleading advertising
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Requiring lenders consider a borrower’s ability to repay the loan should property values and their equity falls
Several consumer advocacy groups contend the new guidelines do not go far enough while lenders expressed concern that these new strengthened guidelines could make it more difficult for many to obtain mortgage financing.
The Mortgage Bankers Association feels rules too broad "could prevent many lenders from making loans to those borrowers most in need of credit and significantly increase the costs of credit for all borrowers" the MBA said in a statement filed with the Fed.
The anticipated go-ahead of the new mortgage guidelines by the Fed comes on the heals of severe price erosion of the stock of Fannie Mae and Freddie Mac – two government-sponsored mortgage investment and guarantee companies who together hold or guarantee roughly 50% of the outstanding mortgage debt in the U.S. – $5.3 Trillion!
In an unusual over-the-weekend discussion the Federal Reserve Board and the U.S. Treasury Department have discussed a possible course of action if one or both of these mortgage firms were to head toward failure. Such failure could send mortgage rates quickly higher and make residential mortgages harder to obtain. It could deal another body blow to the already-battered U.S. Real Estate Market.
According to an unnamed Fed official their plan would allow Fannie Mae and Freddie Mac to borrow many billions of dollars if needed through its "discount window" – an option previously available only to federally chartered banks. Congress would be asked to authorize a total credit line of up to $300 Billion for each institution in order to keep them solvent and to "promote the availability of home mortgage credit during a period of financial stress."
While the Fed and Treasury have worked on their rules change proposals Congress is discussing its own legislation to enact some even tougher mortgage guidelines for new loans. Specific details here are under discussion.
See more details in Jeannine Aversa’s story in Sunday’s Chicago Tribune.
DEAN MOSS & DEAN’S TEAM CHICAGO
