WASHINGTON (Associated Press) - The Federal Reserve has adopted a new plan intended to curb shady lending practices that sent home foreclosure rates to record highs.
The plan will:
- prevent loans made without documentation of borrower's income;
- require lenders to escrow money to pay taxes and insurance for risky borrowers;
- limit - and, in some cases, ban - prepayment penalties;
- prohibit lenders from making a loan without considering a borrower's ability to repay a home loan from sources other than the home's value;
- require mortgage advertising to contain information about rates, monthly payments and other features of the loan;
- require that lenders credit a mortgage payment to a homeowner's account on the day it is received; and
- forbid brokers and others from "coercing or encouraging" an appraiser to misrepresent the value of a home.
Most of the rules take effect Oct. 1. Escrow requirements will take effect April 1, 2010.
I began my business career as a real estate loan officer. It was 1962. This is essentially how we were required to underwrite loans back then. We also required the borrowers to have an equity position of their own -- not 0%, not 3%, not 5%, not 10%, but at least 20%!
I can't believe these people have finally admitted we knew what we were doing --- that our way was better than theirs. Will real equity be next?
that's funny Bill.
go figure now they are going to take measures that determine if people can actually afford their payments. What a concept.
What's that saying about closing the Barn door?
The quick buck artists are heading back to the used car lots.....
We needed a bit of 'cleansing'
Andrew, Miss Joanie and Tom--
Thanks for adding superb comments to the blog. It says we are "guaranteed life, liberty and the pursuit of happiness."
I suppose home-ownership must fall under "pursuit of happiness." If so, it's the right to "pursue" it, not "to have" it that's guaranteed.
So here's how citizens should go about "pursuing" home-ownership: get a job, save some money, give a lender a truthful loan application, find a home they can afford, put the required part of their savings as the down payment into the pot with their loan proceeds, close the deal, move into the home.
Wanna a bigger one and better one...the one with the pool and the media room? Pursue it by earning the right to buy it.
So what to do about lending models that allow people to violate the formula for pursuit? Easy. Fines and jail terms...the antitheses of the pursuit of happiness.
Bill, I like a number of the features of the new rules. Sounds like common sense.
Brian, we see it the same way.
Regards,
Bill