Below are some details on the Fed's proposed new mortgage rules courtesy of Briefing.com:
- New final mortgage rules ban prepayment penalties if payment can rise in first 4 years.
- New rules create category of 'higher-priced mortgages' including virtually all subprime loans.
- Lenders must verify repayment ability from income, non-home assets for higher-priced mortgages.
- Lenders must assess repayment ability on highest scheduled payment in first 7 years of mortgage.
- Lenders must establish property tax, insurance escrow on higher-priced first-lien mortgages.
- Lenders may offer borrowers opportunity to cancel escrow account after one year.
- Creditors must provide estimate of mortgage costs, payment schedule,within 3 days of application
If mortgage regulators can enforce their new rules on "higher-priced mortgages," at least as well as they do for "high-cost mortgages," (which they actually do surprisingly well) this new category of home loan means one thing: don't bother applying for a mortgage unless you have nearly spotless credit and money in the bank.
And while many would argue this is a much needed change in the mortgage market, it does raise a few questions:
- Won't this further increase demand for rental units?
- Won't this force people to save if they want to own a home?
- Isn't money saved different than money spent?
- Where was this legislation in 2006, at the height of the boom, even when regulators knew what was going on?
- Why do regulators seem to focus so much on making new rules, rather than enforcing the old ones?
- If the mortgage market figured out how to get around the old, "high cost loan" limitations, won't it eventually work its way around these as well?
