As new rules to protect borrowers come into effect, some prospective homeowners may find themselves protected out of the market.
On October 1, new Federal Reserve rules went into effect, requiring greater diligence on the part of mortgage lenders and brokers who make high-cost loans – those at least 1.5 percentage points above the average prime mortgage rate – for borrowers with weak credit.
“We’re going to have some consumers who are not able to purchase a home because of this, since most lenders don’t want to do high-cost loans,” Jim Pair, the president of the National Association of Mortgage Brokers (NAMB), told the New York Times. “There’s too much potential liability for them.”
Pair told the newspaper he was concerned that the rules would greatly curtail loan alternatives, especially for those who might qualify only for subprime mortgages.
The regulations, which were adopted last year but are only now coming into effect, prohibit lenders from making a high-cost mortgage without verifying that a borrower could repay the loan, the Times reported.
During the boom from 2003 to 2006, subprime borrowers could get loans without proving that they could make the monthly payments. In stated-income loans – the famous “liar loans” – borrowers could just make up income figures.
Such lies were mortgage fraud, but brokers and lenders often overlooked them in the interest of generating loan fees, the newspaper said.
Stated-income loans continued into 2007, but the volume had tailed off sharply. After the onset of the subprime crisis, borrowers who could not document their income, such as waiters or others paid in cash, were largely rejected by lenders.
While states such as Connecticut and New York had enacted laws requiring more due diligence in subprime lending, these applied only to state-chartered institutions and not to the national banks doing most of the mortgage lending.
For this reason, Uriah King of the Center for Responsible Lending told the Times, the new federal rules are “important, and they are good.” But, said King, the new regulations are “five years too late” to prevent the damage done in the foreclosure crisis.
On October 1, new Federal Reserve rules went into effect, requiring greater diligence on the part of mortgage lenders and brokers who make high-cost loans – those at least 1.5 percentage points above the average prime mortgage rate – for borrowers with weak credit.
“We’re going to have some consumers who are not able to purchase a home because of this, since most lenders don’t want to do high-cost loans,” Jim Pair, the president of the National Association of Mortgage Brokers (NAMB), told the New York Times. “There’s too much potential liability for them.”
Pair told the newspaper he was concerned that the rules would greatly curtail loan alternatives, especially for those who might qualify only for subprime mortgages.
The regulations, which were adopted last year but are only now coming into effect, prohibit lenders from making a high-cost mortgage without verifying that a borrower could repay the loan, the Times reported.
During the boom from 2003 to 2006, subprime borrowers could get loans without proving that they could make the monthly payments. In stated-income loans – the famous “liar loans” – borrowers could just make up income figures.
Such lies were mortgage fraud, but brokers and lenders often overlooked them in the interest of generating loan fees, the newspaper said.
Stated-income loans continued into 2007, but the volume had tailed off sharply. After the onset of the subprime crisis, borrowers who could not document their income, such as waiters or others paid in cash, were largely rejected by lenders.
While states such as Connecticut and New York had enacted laws requiring more due diligence in subprime lending, these applied only to state-chartered institutions and not to the national banks doing most of the mortgage lending.
For this reason, Uriah King of the Center for Responsible Lending told the Times, the new federal rules are “important, and they are good.” But, said King, the new regulations are “five years too late” to prevent the damage done in the foreclosure crisis.
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