FED PROPOSES “PLAIN ENGLISH” LOAN RULES TO MAKE MORTGAGES EASIER TO UNDERSTAND!

FED PROPOSES "PLAIN ENGLISH" LOAN RULES TO MAKE MORTGAGES EASIER TO UNDERSTAND!

BUT WILL NEW TOUGHER DISCLOSURE RULES REALLY PREVENT A REPEAT OF THE MORTGAGE MELTDOWN OF 2008?

Easy Money!

That’s how many Hind-sighted Critics blamed lax Lending and Loan Disclosure Policies for creating the most dramatic downturn in Real Estate Sales and the freeze in mortgage and credit markets – a tumble which many experts claim as the worst since The Great Depression.

Now the Federal Reserve Board is formulating new lending disclosure rules which they feel will make mortgage rules easier to understand. They hope the new procedures will not only educate borrowers on how mortgage instruments work but also help them steer clear of risky loan products which could lead to escalating monthly house payments they might not be able to afford.

Among the changes as reported by Associated Press Economics Writer Jeannine Aversa in today’s Chicago Tribune –

– a new easier-to-understand explanation of potentially high-risk mortgage disclosure features including pre-payment penalties and the method by which Annual Percentage Rate (APR) is computed.

– a worst-case-scenario of how monthly loan payments might change with an Adjustable Rate Mortgage or ARM. Lenders would also be required to notify borrowers 60 days in advance of any change up from the current 25 days.

– for borrowers who take on loans whose monthly mortgage payments don’t adequately cover monthly interest accrued an explanation that underpaying interest would increase the outstanding principal balance on a loan. Payment options that would avoid increasing principal loan balance would have to be offered.

– a prohibition of compensation to loan officers and mortgage brokers based on undesirable loan terms. Such terms could rack up fees and commissions to the mortgage broker but would not be in the best interest of the borrower.

– a proposal to prohibit lenders from calling a Home Equity Line of Credit delinquent unless the customer’s payment is more than 30 days late.

Is everyone on board with these changes? Well not everyone!

Representatives of both the Mortgage Bankers Association and the American Bankers Association each praise the consumer protection aspects of the changes but fear too many changes could be burdensome to lenders and could eventually increase loan fees.

See Ms. Aversa’s story for more details.

DEAN MOSS & DEAN’S TEAM CHICAGO