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 September 06, 2008

New Loan Rules from the Fed
Here are a couple of the new Fed rules to prevent future mortgage troubles. There is really not much they can do about what has already been done, but these rules, which are effective October 1, 2009, should do the trick.
The first provision is to prevent a lender from giving a loan without first determining the borrower's ability to repay the loan by checking their assets and income above and beyond the value of the home. By doing this, it makes the lender delve deeper into the person's debt to income ratio and determine their chances of getting a loan by reviewing how much savings they have, what kind of money are they making, bigger down payments and lastly, determine what the other liquid assets are in case the borrower is unable to repay the loan.

Do away with any prepayment penalties if the payment is able to change during the first four years. For larger loans, the prepayment penalty will not be allowed to last over two years. The idea behind this one is to offer a smaller variety of loans, which in turn, will take several people out of the housing market and will force others to take their time shopping for a home. By encouraging people to take longer in their home search, it forces homebuyers to "shop smarter".

I'll post some more of the provisions in a later blog.